The story opens with the main character, the shepherd Santiago, arriving at an abandoned church with a sycamore growing in it in the Spanish region of Andalusia. He decides to stay the night at the church and corrals his herd into the church grounds. He falls asleep using the book that he keeps with him at all times as his pillow. During the night, he has a dream that he has had several times before, a dream he has never been able to fully understand. While waking his herd, he realizes that he is very close to the animals; they operate on the same schedule and he calls them all by name, convinced that they understand his conversation with them. They are very simple creatures, though, wanting only food and water. Recently all of this thoughts and conversations with the sheep have been about a girl he met a year ago, at the town that is his next destination. She is the daughter of a merchant and he has been thinking about her ever since he left.
Remembering their first meeting, Santiago reminisces about how he went to the shop of the girl's father to sell him some wool. While waiting for the shopkeeper to see him, the boy sat down to read a book. A voice from behind him said, "I didn't know shepherds knew how to read." The voice was that of the shopkeeper's daughter, a beautiful Andalusian girl whose features recalled the Moorish influence of the region. The girl and Santiago waited for two hours, during which time they told each other about their experiences, she in the town and he in the fields. The girl asked him why he was a shepherd if he had been to school and knew how to read. Santiago changed the subject and continued the conversation. He felt something which he had never felt before: the desire to stay in one place forever. Unfortunately, at that moment, the shopkeeper appeared, bought four sheep worth of wool and told the boy to come back in a year.
Leaving the church in the morning, Santiago is both excited and apprehensive about seeing the girl. She could have forgotten him. As they set out, he begins to think about the lives of the sheep, and how sheep don't make any decisions. They want only food and water and rely on Santiago for that. Surprised at his feelings of mild resentment toward the animals, Santiago decides his recurring dream has made him uneasy. When he gets to the town, he resolves, he will tell the girl why he knows how to read, how he went to seminary and was originally set to be a priest, and one day got the courage to tell his family that he would rather travel the world as a shepherd. As we learn from Santiago's memories, his father at first tried to convince him to stay, pointing out that plenty of travelers had passed through their lands and said that they would like to live there. In the end, however, he capitulated and gave Santiago his blessing and three old gold coins to buy his flock. Santiago could thus see that his father himself had once had dreams of traveling the world.
Santiago's lifestyle as a shepherd has provided him with a lot of freedom. All he has to do is allow his sheep to lead the way for a while and he will always find a new path. The difference between him and the sheep, though, is that the sheep never know they are on a new path. Once again, all they think about is food and water. Santiago realizes that dreaming about what you don't have is what makes life interesting.
Part I of the novel, which ends with Santiago accepting a job at the crystal shop, includes the main character's introduction, acceptance of challenge and initial setback. The reader is also introduced, in an unexplained form, to several of the main terms that reappear and are explained throughout the story, among them "Personal Legend" and "Soul of the World." This section also introduces several of the main themes of the narrative: love, in the false-love of Santiago for the merchant's daughter; dreams, in the form of Santiago's dream of the treasure; fate, in the form of Melchizedek's intervention in Santiago's life.
The narrative arc of The Alchemist follows a relatively common formula. The hero leaves home to pursue a quest, is tested three times, and, upon succeeding, returns home as a victor. What makes The Alchemist stand apart, though, is that there are essentially two parallel quests going on in the narrative. The first is a rather familiar search for treasure. This quest, though, is merely the metaphorical double to Santiago's other journey, which is to discover his own Personal Legend. What is particularly interesting about this section is the way that (similarly to this narrative dichotomy) it straddles the great geographic division that forms the main dialectic of the physical story - namely, that between Spain and Africa. While the end of this section could have very easily come when Santiago leaves Andalusia for Africa, it instead concludes when Santiago seems to have resigned himself to merely make enough money to return to Spain. This division suggests that the main drama in the narrative is not a physical adventure–characterized by exotic lands, physical challenges or vicious enemies–but rather an interior drama (of Santiago overcoming his own fears and harnessing the willpower to achieve his Personal Legend).
The book Santiago carries with him at all times has several symbolic resonances. It distinguishes him from being a common shepherd. The merchant girl knows that he is extraordinary because he can read. The book is a source of knowledge and freedom, allowing Santiago a different, broader outlook on the world. Books also, however, propagate certain misleading ideas, as argued by Melchizedek when he claims that Santiago's book endorses the world's greatest lie. Later, the Englishman will be blocked from realizing the truths of alchemy because he is too tied to his complicated books. Fate is often described metaphorically as a book that was written by one hand. The "book of fate" would thus be the only book capable of telling the whole truth.
This section also introduces the Moors, who will recur throughout the novel. The merchant girl, of whom Santiago dreams, is remarkable for her "moorish" features. This foreshadows both Santiago's love for Fatima and the journey he will undertake to Africa, from whence the Moors came.