The story begins when Mr Otis and family move to Canterville Chase, despite warnings from Lord Canterville that the house is haunted. Mr Otis says that he will take the furniture as well as the ghost at valuation. The Otis family includes Mr and Mrs Otis, their eldest son Washington, their daughter Virginia and the Otis twins (often referred to as "Stars and Stripes"). The other characters include the Canterville Ghost, the Duke of Cheshire (who wants to marry Virginia), Mrs Umney (the housekeeper), and Rev. Augustus Dampier. At first,none of the Otis family believe in ghosts, but shortly after they move in, none of them can deny the presence of Sir Simon de Canterville (The Canterville Ghost). The family hears clanking chains, they witness reappearing bloodstains "on the floor just by the fireplace", which are removed every time they appear in various forms (colours). But, humorously, none of these scare the Otis family in the least. In fact, upon hearing the clanking noises in the hallway, Mr Otis promptly gets out of bed and pragmatically offers the ghost Tammany Rising Sun Lubricator to oil his chains.
Despite Sir Simon's (ghost) attempts to appear in the most gruesome guises, the family refuses to be frightened, and Sir Simon feels increasingly helpless and humiliated. When Mrs Otis notices a mysterious red mark on the floor, she simply replies that she does "not at all care for blood stains in the sitting room". When Mrs Umney informs Mrs Otis that the blood stain is indeed evidence of the ghost and cannot be removed, Washington Otis, the eldest son, suggests that the stain will be removed with Pinkerton's Champion Stain Remover and Paragon Detergent: a quick fix, like the Tammany Rising Sun Lubricator, and a practical way of dealing with the problem.
Wilde describes Mrs Otis as "a very handsome middle-aged woman" who has been "a celebrated New York belle". Her expression of "modern" American culture surfaces when she immediately resorts to giving the ghost "Doctor Dobell's tincture" thinking he was screaming due to indigestion on family's second encounter with the ghost and when she expresses an interest in joining the Psychical Society to help her understand the ghost. Mrs Otis is given Wilde's highest praise when he says: "Indeed, in many respects, she was quite English..."
The most colourful character in the story is undoubtedly the ghost himself, Sir Simon, who goes about his duties with theatrical panache and flair. He assumes a series of dramatic roles in his failed attempts to impress and terrify the Otises, making it easy to imagine him as a comical character in a stage play. The ghost has the ability to change forms, so he taps into his repertoire of tricks. He takes the role of ghostly apparitions such as a Headless Earl, a Strangled Babe, the Blood-Sucker of Bexley Moor, Suicide's Skeleton, and the Corpse-Snatcher of Chertsey Barn, all having succeeded in horrifying previous castle residents over the centuries. But none of them works with these Americans. Sir Simon schemes, but even begins as his costumes become increasingly gruesome, his antics do nothing to scare his house guests, and the Otises beat him every time. He falls victim to tripwires, peashooters, butter-slides, and falling buckets of water. In a particularly comical scene, he is frightened by the sight of a "ghost" rigged up by the mischievous twins.
During the course of the story, as narrated from Sir Simon's viewpoint, he tells us the complexity of the ghost's emotions: he sees himself brave, frightening, distressed, scared, and finally, depressed and weak. He exposes his vulnerability during an encounter with Virginia, the Otis's fifteen-year-old daughter. Virginia is different from everyone else in the family, and Sir Simon recognizes this. He tells her that he has not slept in three hundred years and wants desperately to do so. The ghost reveals to Virginia the tragic tale of his wife, Lady Eleanor de Canterville.
Unlike the rest of her family, Virginia does not dismiss the ghost, because she is different from everyone else in the family. She takes him seriously: she listens to him and learns an important lesson, as well as the true meaning behind a riddle. Sir Simon de Canterville says that she must weep for him, for he has no tears; she must pray for him, for he has no faith; and then she must accompany him to the angel of death and beg for Death's mercy upon Sir Simon. She does weep for him and pray for him, and she disappears with Sir Simon through the wainscoting and goes with him to the Garden of Death and bids the ghost farewell. Then she reappears at midnight, through a panel in the wall, carrying jewels and news that Sir Simon has passed on to the next world and no longer resides in the house.
Virginia's ability to accept Sir Simon leads to her enlightenment: Sir Simon, she tells her husband several years later, helped her understand "what Life is, what Death signifies, and why Love is stronger than both". The story ends with Virginia marrying the Duke of Cheshire after they both come of age.
The Canterville Ghost is a study in contrasts. Wilde places the American Otises in a British stately home. He creates stereotypical characters that represent both England and the United States, and he presents each of these characters as comical figures, satirizing both the unrefined tastes of Americans and the determination of the British to guard their traditions. Sir Simon is not a symbol of England, as Mrs Umney perhaps is, but rather a paragon of British culture. In this sense, he stands in perfect contrast to the Otises. By pitting the ghost and the Otises against each other, Wilde emphasized the clash of cultures between England and the United States of America.
[[The story illustrates Wilde's tendency to reverse situations into their opposites, as the Otises gain the upper hand and succeed in terrorizing the ghost rather than being terrorized by him. This ghost story is told from the perspective of the ghost, Sir Simon. Sir Simon could logically be labeled the protagonist in this story, as it is he who faces the challenge of overcoming adversity and bettering his lot.]]
Humor is the most powerful weapon used by Wilde to defuse the tension and scary atmosphere that characterise a traditional ghost story. Phantoms, strange noises, blood stains, even the haunting of the ghost in the corridors are all treated with humor: Mr Otis offers lubricant for creaking chains, the persistent blood stain is cleaned with stain remover, and the ghost appears in a miserable state that shocks nobody. After Mr Otis offers him lubricator to oil his chains, the ghost laughs demoniacally, then Mrs Otis accuses him of indigestion and offers him tincture. The ghost feels duty bound and says, "I must rattle my chains, groan through keyholes, walk about at night."
Oscar Wilde treats even murder flippantly. Sir Simon murdered his wife because she was not a good cook and could not do repair work. Sir Simon even gloats to himself about the people he drove to insanity or death as a ghost. He becomes frustrated because the Otises are incapable of appreciating the symbolic value of apparitions, blood stains, the development of astral bodies and his solemn duty to haunt the castle. All the tricks which are played on the ghost by the twins are humorous, with the most ironic being the fake ghost which frightens the "real" Canterville ghost.
[[Though Wilde tells a humorous tale, it appears that he also has a message, and he uses fifteen-year-old Virginia to convey it. Virginia says that the ghost helped her see the significance of life and death, and why love is stronger than both. This is certainly not the first time an author has used a traditional ghost story and the theme of life and death to examine the issue of forgiveness: ghosts, after all, presumably remain in this realm because, for some reason, they are unable to move on. Wilde's ghost, Sir Simon, "had been very wicked", and had even murdered his wife because she had plain looks and was not good at cooking. Virginia tells her father after she returns to the castle, "But he was really sorry for all that he had done." God has forgiven him, Virginia tells her father, and because of that forgiveness, Sir Simon de Canterville can finally rest in peace.]]