The novel opens with Junior's explanations of the fact that he was born with an excess of cerebrospinal fluid in his skull (an event that he describes as being "born with water on the brain"). Junior is left with many physical problems. Some of these problems are that he is skinny, and has an over-sized head, hands, and feet. He also suffers from poor eyesight, experiences frequent seizures, and lisps and stutters. Mistreated by others on the reservation because of these problems, Junior is regularly beaten up and given such nicknames as "retard" (for the brain damage that he has sustained) and "globe" (for his large head). His family, like the majority of the other reservation families, is incredibly poor: This point is emphasized when Arnold's adopted dog Oscar begins to suffer from intense heat exhaustion and Arnold's father is forced to shoot him to avoid having to pay the expensive veterinary treatment necessary to save him.
Arnold's life on the reservation is brightened by his friend Rowdy, a "tough kid", as he is called by Arnold. Rowdy's father abuses him and his mother, thus they are constantly and noticeably covered in bruises. Despite the hardships that he experiences and his cold, tough attitude, Rowdy stays true to his friend Arnold and tries to protect him from some of the physical abuse he is dealt. On Arnold's first day of high school, his geometry teacher, Mr. P, hands out textbooks to the students and Arnold realizes that his book has his mother's maiden name written in it. She was thirty years old when she gave birth to Arnold, thus making the textbook at least thirty years older than Arnold himself. Arnold is angered and saddened by the fact that the Spokane reservation is so poor that it is unable to afford new textbooks for its high school. Because of this, Arnold violently throws the book, which ends up colliding with Mr. P's face and breaking his nose. The school subsequently suspends Arnold. During Arnold's suspension, Mr. P meets with Arnold to reveal to him his sister's dream to be a romance writer, he is not angry with him, and that "You [Arnold] have to leave this reservation".
A week into the school year, Arnold transfers to Reardan High School, a school full of kids with a lot of money in the countryside. Arnold is the only Indian at Reardan besides the team mascot. Although Arnold's mother is an ex-drunk, his father a drunk, and they are poor, they still allow him to transfer to Reardan. Arnold starts to have a crush on the school's most popular white girl, Penelope, and makes friends with a smart student named Gordy. Arnold tries to talk to Rowdy about his crush on Penelope, but their relationship is strained by Arnold's decision to go to Reardan. In contrast, Arnold and Penelope develop a closer relationship. Arnold makes the Reardan varsity basketball team and plays two games against his former school, Wellpinit, and specifically Rowdy. During their first game, Wellpinit wins after Rowdy elbows Arnold in the head and knocks him unconscious. In their second meeting, Reardan wins and Arnold gets to block Rowdy. Arnold believed he wanted to win, but after seeing the Wellpinit players' faces after their defeat, he cries and feels ashamed of himself. Throughout the novel, Arnold is struck by many tragedies: his grandmother is run over by a drunk driver, Gerald, while walking home from a powwow; his father's best friend Eugene is shot in the face by his friend Bobby after fighting over the last drink of alcohol; and his newlywed sister and her husband die when their mobile home is accidentally set on fire after a night of heavy drinking. In the end, Arnold and Rowdy reconcile while playing basketball and resolve to correspond no matter where the future takes them.