The Castle of Otranto tells the story of the Lord, Manfred, and his family. The story begins on the wedding day of Manfreds son, Conrad, and the Princess Isabella. The wedding is not to take place however, due to Conrad being crushed to death by a giant helmet just before. The death of his son terrifies Manfred that a prophecy, proclaiming that the castle will pass on from their family, is beginning to come true. Manfred plots to divorce his wife, Hippolita, on the circumstances that she has failed to bare him a proper heir and marry Isabella himself. Repulsed by this, Isabella fleas into a passage beneath the castle where she meets the peasant Theodore, who aids her in escaping to a nearby church. Father Jerome assures Manfred of Isabellas safety in the church and informs him of Theodores help to the Princess.
Manfred orders the execution of Theodore. As Theodore removes his shirt, Jerome recognized the mark below his shoulder and identifies him as his own son. Jerome begs for his sons life and Manfred offers him his sons life for the release of Isabella. They are interrupted as knights enter, wanting to deliver Isabella. The knights and Manfred race in a fight to find Isabella. Theodore, having been locked in a tower by Manfred, is released by Manfreds daughter Matilda. He quickly races to the underground church and finds Isabella. He hides her in a cave and blocks it to protect her. He ends up in a fight with a mysterious knight who turns out to be Isabellas father, Fredric. Everyone makes their way up to the castle where Fredric falls in love with Matilda. Manfred and Fredric begin to make a deal to marry one another's daughters.
Manfred, believing that Isabella will be meeting with Theodore in a tryst at the church, takes a knife into the church where it is actually Matilda who is meeting Theodore. Thinking that Matilda is Isabella, Manfred kills his own daughter.
Theodore is eventually revealed to be the true prince of Otranto with Matilda dead, and Manfred is left to repent. Theodore becomes king and is married to Isabella, for she is the only one who can truly understand his sorrow.