Two migrant field workers in California on their plantation during the Great Depression—George Milton, an intelligent but uneducated man, and Lennie Small, a man of large stature and great strength but limited mental abilities—are on their way to another part of California in Soledad. They hope to one day attain their shared dream of settling down on their own piece of land. Lennie's part of the dream is merely to tend to (and touch) soft rabbits on the farm, as he loves touching soft animals, although he always kills them. This dream is one of Lennie's favorite stories, which George constantly retells. They are fleeing from their previous employment in Weed, California, where they were run out of town after Lennie's love of stroking soft things resulted in an accusation of attempted rape, when he touched a young woman's dress, and would not let go. It soon becomes clear that the two are close friends and George is Lennie's protector, despite Lennie's antics irritating him. The theme of friendship is a constant throughout the story.
At the ranch after being hired, the situation appears to be menacing and dangerous, especially when the pair are confronted by Curley—The Boss's small-statured, aggressive son with a napoleon complex who dislikes larger men—leaving the gentle giant Lennie potentially vulnerable. Curley's flirtatious and provocative wife, to whom Lennie is instantly attracted, poses a problem as well. In sharp contrast to these two characters, the pair also meets Candy, a kind, old, aged ranch hand with one hand and a loyal dog, and Slim, the kind, intelligent and intuitive jerkline-skinner whose dog has recently had a litter of puppies. Slim gives a puppy to Lennie, as he does to Candy, who had a loyal, accomplished sheep dog that was killed due to its old age and uselessness.
In spite of the potential problems on the ranch, their dream leaps towards reality when Candy offers to pitch in $350, most of the money that they need, with George and Lennie so that they can buy a farm at the end of the month, in return for permission to live with them on it. The trio are ecstatic, but their joy is overshadowed when Curley attacks Lennie. In response, a bleeding and injured Lennie, urged on by George, catches Curley's fist and easily crushes it, reminding the group there are still obstacles to overcome before their goal is reached.
Nevertheless, George feels more relaxed, since the dream seems just within their grasp, to the extent that he even leaves Lennie behind on the ranch while he goes into town with the other ranch hands. Lennie wanders into the stable, and chats with Crooks, the bitter, yet educated stable buck, who is isolated from the other workers because he is black. Candy finds them and they discuss their plans for the farm with Crooks, who cannot resist asking them if he can hoe a garden patch on the farm, despite scorning the possibility of achieving the dream. Curley's wife makes another appearance and flirts with the men, especially Lennie. However, her spiteful side is shown when she belittles them and is especially harsh towards Crooks because of his race, threatening to have him lynched.
The next day, Lennie accidentally kills his puppy while stroking it. Curley's wife enters the barn and tries to speak to Lennie, admitting that she is lonely and how her dreams of becoming a movie star are crushed, revealing the reason she flirts with the ranch hands. After finding out that Lennie loves stroking soft things, she offers to let him stroke her hair, but panics and begins to scream when she feels his strength. Lennie becomes frightened, and in the scuffle, unintentionally breaks her neck. When the other ranch hands find the corpse, George unhappily realizes that their dream is at an end. George hurries away to find Lennie, hoping he will be at the meeting place they designated at the start of the novella in case Lennie got into trouble, knowing that there is only one thing he can do to save Lennie from the painful death that Curley's lynch mob intends to deliver.
George meets Lennie at the designated place, the same spot they camped in the night before they came to the ranch. The two sit together and George retells the beloved story of the bright future together that they will have, knowing it is something they will never share. He then shoots Lennie in the back of the head, so that his death will be painless and happy. Curley, Slim, and Carlson find George seconds after the shooting. Only Slim realizes that George killed Lennie out of love, and gently and consolingly leads him away, while Curley and Carlson look on, unable to comprehend the subdued mood of the two men.