The story centers on Sherman McCoy, a wealthy New York City bond trader with a wife and young daughter. His life as a self-regarded "Master of The Universe" on Wall Street is destroyed when he and his mistress, Maria Ruskin, accidentally enter the Bronx at night while they are driving to Manhattan from Kennedy Airport. Finding the ramp back to the highway blocked by trash cans and a tire, McCoy exits the car to clear the way. Approached by two black men whom they perceive—uncertainly, in Sherman's case—as predators, McCoy and Ruskin flee. Having taken the wheel of the car, which fishtails as they race away, Ruskin apparently strikes one of the two—a "skinny boy".
Peter Fallow, a has-been, alcoholic journalist for the tabloid City Light, is soon given the opportunity of a lifetime when he is persuaded to write a series of articles about Henry Lamb, a black youth who has allegedly been the victim of a hit and run by a wealthy white driver. Fallow cynically tolerates the manipulations of the Reverend Bacon, a Harlem religious and political leader who sees the hospitalized boy as a projects success story done wrong. Fallow's series of articles on the matter ignites a series of protests and media coverage of the Lamb case.
Up for re-election and accused of foot-dragging in the Lamb case, the media-obsessed Bronx District Attorney Abe Weiss pushes for McCoy's arrest. The evidence consists of McCoy's car, which matches the description of the vehicle involved in the alleged hit and run, plus McCoy's evasive response to police questioning. The arrest all but ruins McCoy; distraction at work causes him to flub on landing an investor for a $600 million bond, resulting in McCoy being forced to take a leave of absence from his job. Sherman's upper class friends ostracize him, and his wife leaves him and takes their daughter.
Hoping to impress his boss as well as an attractive former juror, Shelly Thomas, Assistant District Attorney Larry Kramer aggressively prosecutes the case, opening with an unsuccessful bid to set McCoy's bail at $250,000. Released on bail, McCoy is besieged by demonstrators who are protesting outside his $3 million Park Avenue co-op.
Fallow hears a rumor that Ruskin was at the wheel of McCoy's car when it allegedly struck Lamb, but Ruskin has fled the country. Trying to smoke out the truth, on the pretense of interviewing the rich and famous, Fallow meets Ruskin's husband, Arthur, at a pricey French restaurant. While recounting his life, Arthur has a fatal seizure, as disturbed patrons and an annoyed maître d' look on. Ruskin is forced to return to the United States for his funeral, where McCoy confronts her about being "the only witness". Fallow, hoping also to talk with Ruskin, overhears this.
Fallow's write-up of the association between McCoy and Ruskin prompts Assistant D.A. Kramer to offer Ruskin a deal: corroborate the other witness and receive immunity—or be treated as an accomplice. Ruskin recounts this to McCoy while he is wearing a wire. When a private investigator employed by McCoy's lawyer, Tommy Killian, discovers a recording of a conversation that contradicts Ruskin's grand jury testimony, the judge assigned to the case declares the testimony "tainted" and dismisses the case.
As the epilogue, a fictional New York Times article informs us that Fallow has won the Pulitzer Prize and married the daughter of City Light owner Gerald Steiner, while Ruskin has escaped prosecution and remarried. McCoy's re-trial ends in a hung jury, split along racial lines. Kramer is removed from the prosecution after it is revealed he was involved with Shelly Thomas in a sexual tryst at the apartment formerly used by Ruskin and McCoy. It is additionally revealed that McCoy has lost a civil trial to the Lamb family and, pending appeal, has a $12 million liability, which has resulted in the freezing of his assets. The all-but-forgotten Henry Lamb succumbs to his injuries; McCoy, penniless and estranged from his wife and daughter, awaits trial for vehicular manslaughter. In the novel's closing, Tommy Killian holds forth:
If this case was being tried in foro conscientiae [in the court of the conscience], the defendants would be Abe Weiss, Reginald Bacon, and Peter Fallow of The City Light.