Bruno, a young boy living in Berlin during the Nazi regime, arrives home from school one day to find his family's maid, Maria, packing up his things. When he asks his mother what is going on, she explains that Bruno's father's job is the reason they are all leaving their home in Berlin; someone Bruno knows only as "the Fury" has plans for his father's career. Chapter Two begins with a comparison of Bruno's old home in Berlin to his new living situation. In contrast to his family's big, beautiful home in Berlin, "there was something about the new house that made Bruno think that no one ever laughed there; that there was nothing to laugh at and nothing to be happy about" (13).
Chapter Three introduces Gretel, Bruno's older sister by three years, whom he refers to as "Trouble From Day One" (21). Bruno runs into Gretel's room and discovers her arranging her dolls around her room. She agrees with Bruno that their new living situation is horrible and tells him that the place is called "Out-With." Bruno shows Gretel the scene from his bedroom window: There are boys, men, and elderly men living together on the opposite side of a fence that extends farther than they can see into the distance. After Gretel returns to her room, Bruno continues to watch the people out his bedroom window and notices that they're all wearing the same thing: "a pair of grey striped pajamas with a grey striped cap on their heads" (38).
Bruno decides to speak to Father, who arrived at Out-With a few days earlier. When Bruno asks when they can return to Berlin, Father tells him to give Out-With a chance, because it is their home now, "for the foreseeable future" (48). Before he leaves, Bruno asks Father who the people are outside his window. Father answers, "Those people... well, they're not people at all, Bruno... at least not as we understand the term" (53). A few days later, Bruno engages Maria in conversation, hoping she will agree with him that Out-With is a horrible place, but she avoids saying anything negative. She hints that she cannot understand how such a good man could be doing Father's job at Out-With.
Several weeks go by and Bruno is bored at Out-With, so he builds a rope swing and a couple of hours later, falls off of it. He injures himself, scraping up his knee pretty badly. Pavel, one of the prisoners at Out-With who works in the family's home as a waiter, sees the whole thing and runs out to help Bruno. Since Mother is still not home, Pavel cleans Bruno's wounds in the kitchen and tells Bruno that he used to be a doctor. When Mother arrives home, she tells Bruno to go to his room and he overhears her saying to Pavel, "If the Commandant Asks, we'll say that I cleaned Bruno up" (85).
More than anyone else from Berlin, Bruno misses his Grandfather and Grandmother. His Grandfather had run a restaurant in the town center, and his Grandmother had been a famous singer. The last time he saw them in Berlin, Grandmother had become outraged at Father's new promotion. She had stormed out of their house, and Bruno hadn't seen her since. He decides to write her a letter from Out-With, telling her how unhappy he is in their new home and how much he misses her.
Father decides to hire a man named Herr Liszt as a tutor for Gretel and Bruno. Herr Liszt focuses on history and geography, neither of which is very interesting to Bruno, but the tutor insists that he learn about "The Fatherland" (98). A few days later, Bruno gets the urge to go exploring and decides to walk along the fence as far as he can, although Mother and Father have told him many times that exploration is banned at Out-With. Right when he starts feeling hungry and begins to think about turning back, he sees a little boy on the other side of the fence, wearing the striped pajamas that all people on the other side of the fence wear. Bruno is "sure that he had never seen a skinnier or sadder boy in his life" (107). Bruno strikes up a conversation with the boy, whose name is Shmuel, sitting down on his own side of the fence so he can talk through it. Shmuel is from Poland and Bruno tells him that, "Germany is the greatest of all countries... We're superior" (112), but even as he says this, he realizes that his words sound rude.
Chapter Eleven takes the form of a flashback to a few months earlier, when Bruno's family still lived in Berlin. One night, the Fury had come to their home for dinner with a kind woman named Eva. After the Fury and Eva had left, Bruno had overheard his parents' conversation about leaving Berlin. Days later, he had arrived home from school to find Maria packing his belongings.
Chapter Twelve returns to Bruno and Shmuel's conversation from opposite sides of the fence. Shmuel explains how he came to live at Out-With. His family was told they had to move to a different part of Cracow, on the wrong side of a wall that soldiers built, all cramped in one room with another family. One day soldiers arrived and packed him and everyone living nearby into huge trucks, and later into a train with no doors. Shmuel tells Bruno that there are hundreds of other boys on his side of the fence, and Bruno reiterates his feeling that it is unfair for him to have no one to play with on his side. Weeks pass and Bruno visits with his new friend Shmuel regularly.
One evening, Lieutenant Kotler joins Bruno's family for dinner. Lieutenant Kotler mentions that his father was a professor of literature at the university, but that he had left Germany for Switzerland in 1938. This information embarrasses Lieutenant Kotler and disturbs Father, who comments with suspicion that it is "[strange] that he chose not to stay in the Fatherland" (146). Pavel uncorks a new bottle of wine and accidentally spills it on Lieutenant Kotler because his hands are shaking. Lieutenant Kotler reacts very angrily and violently, although the details of his actions against Pavel are not revealed. Bruno goes to bed extremely upset about what happened to Pavel.
One rainy day, Bruno accidentally mentions Shmuel to Gretel but quickly covers it up, explaining that Shmuel is the name of his imaginary friend. The rain continues on and off for the next few weeks, during which Bruno is unable to meet with Shmuel as often as he would like. Mother is planning a birthday party for Father and Lieutenant Kotler is spending a lot of time at the house with her; they are having an affair. On the day before the party, Bruno finds Shmuel in the kitchen; Lieutenant Kotler has brought him there because his hands are small enough to polish the glasses for Father's birthday party. Bruno begins to help himself to some cold chicken and stuffing that's in the refrigerator and when he sees Shmuel looking at the food, he offers his friend some. Lieutenant Kotler returns and accuses Shmuel of stealing food to eat. When Shmuel tells him that Bruno gave it to him and that Bruno is his friend, but Bruno is frightened and denies it. Bruno leaves the kitchen feeling incredibly guilty about having betrayed his friend. For almost a week, Shmuel does not come back to meet him at the fence and when he finally returns, his face is covered in bruises. Bruno apologizes for letting him down and says he's ashamed of himself. Shmuel smiles and forgives him, lifting up the fence so that they can shake hands beneath it.
The family receives news that Grandmother has died, so they return to their old home in Berlin for two days to attend the funeral. The two days are so sad that Bruno is almost relieved to return to Out-With. Lieutenant Kotler has been suddenly transferred away from Out-With, coinciding with a huge fight between Mother and Father. Bruno decides to ask Gretel about why he and Shmuel have to live on opposite sides of the fence. She explains that the people on the other side of the fence are Jews and that the fence is there to keep them from getting out and mixing with anyone else. When Bruno asks her what he and their family are, if not Jews, she says simply that they're "the opposite" (183). While they are talking, it is revealed that Gretel and Bruno both have lice. They treat their hair with a special shampoo, but then Father goes a step further and insists that Bruno have all his hair shaved off; Bruno notices that this makes him look even more like Shmuel. A few weeks later, Father calls Gretel and Bruno into his office and tells them that the Fury will not relieve him of his command, but that Mother wants to go back to Berlin immediately. Preparations begin so that Mother, Gretel, and Bruno can return to Berlin that week, but Bruno is nervous about telling Shmuel the news.
Bruno tells Shmuel that he is returning to Berlin. Shmuel is saddened by this news, and suggests that he come over to the other side of the fence. They decide that the next day, Shmuel will bring him a pair of striped pajamas, and he will sneak over to the other side of the fence to help Shmuel search for his father. The next day is rainy and muddy, but Bruno goes to meet Shmuel, who has brought with him a pair of dirty-looking striped pajamas. He hands the pajamas under the fence to Bruno, who carefully changes into them, leaving his own clothes in a pile in the mud. Shmuel lifts the fence and Bruno shimmies underneath it, becoming quite muddy in the process. In contrast to what Bruno had envisioned, the people on the other side of the fence are just standing or sitting, "looking horribly sad" (207). They are all too skinny and have shaved heads, which Bruno takes to indicate they have had lice here, too. The boys spend an hour and a half searching for evidence of where Shmuel's father could have gone. They don't find anything, which is what Shmuel had expected, and Bruno says again that he ought to go home. Just then, the soldiers round up the people around Bruno and Shmuel. Shmuel reassures Bruno that "it happens sometimes... They make people go on marches" (210). Just as Bruno is beginning to lose patience and deciding that he really must go home because he is too cold, the group is marched into a warm, airtight room. Bruno apologizes to Shmuel that they weren't able to find his father and tells him that he is his "best friend for life" (213). At that moment, the people in the room with them all gasp as the door is slammed shut and locked. The room becomes dark and chaotic, but Bruno and Shmuel continue to hold hands.
The soldiers search for Bruno for days before the pile of his clothes and boots is discovered by the fence. Father goes to see them but cannot figure out what happened to his son. Mother and Gretel stay at Out-With for a few months waiting for news of Bruno. One day, Mother has the sudden notion that he might have returned to their home in Berlin, so she rushes back with Gretel but doesn't find Bruno there. Over the next year, Father becomes very disliked by all the soldiers at Out-With. The finally, he returns to the place where his son's clothes had been found and notices the opening in the fence. He realizes what must have happened, and a few months later he is discharged from his post at Out-With and taken away by soldiers.