The story is set in Ayemenem, Kerala, with a disjointed narrative shifting between 1969 and 1993. Rahel and Estha, fraternal twins, reunite in 1993. Ammu Ipe, their mother, marries Baba to escape her father and returns to Ayemenem after leaving her abusive husband. Chacko, Ammu's brother, returns from England after his divorce. The family home includes Baby Kochamma, Pappachi's sister, who remained unmarried due to unrequited love. She manipulates events to cause misfortune.
The death of Margaret's second husband in a car accident prompts Chacko to invite her and their daughter, Sophie, to spend Christmas in Ayemenem. On the road to the airport, the family encounters a group of Communist protesters who surround the car and humiliate Baby Kochamma. Rahel thinks she sees amongst the protesters Velutha, an Untouchable servant who works for the family's pickle factory. Later at the theater, Estha is sexually molested by the "Orangedrink Lemondrink Man", a vendor working at the snack counter. Rahel's claim of seeing Velutha in the Communist mob leads Baby Kochamma to associate him with her humiliation. Rahel and Estha develop a bond with Velutha, while Ammu is drawn to him, sparking a forbidden romance. Velutha is depicted as sympathetic but faces tragedy due to his caste and relationship with Ammu. When Velutha's father exposes their affair, Ammu is locked up, and Velutha is banished. Ammu blames the twins for her plight, leading them to flee with their cousin Sophie. Their boat capsizes and Sophie drowns, Margaret and Chacko return to find Sophie dead on the sofa.
It didn't matter that the story had begun, because Kathakali discovered long ago that the secret of the Great Stories is that they have no secrets. The Great Stories are the ones you have heard and want to hear again. The ones you can enter anywhere and inhabit comfortably. They don't deceive you with thrills and trick endings.
— The God of Small Things
Baby Kochamma accuses Velutha of Sophie's death, leading to his brutal beating and arrest by the police. The twins witness this traumatic event. Chief of police aware of Velutha's Communist ties, fears unrest if the wrongful arrest is exposed. He threatens Baby Kochamma for falsely accusing Velutha. To save herself, Baby Kochamma manipulates Estha and Rahel into implicating Velutha in Sophie's murder. Velutha dies from his injuries. Despite Ammu's attempts to tell the truth, Baby Kochamma convinces Chacko that Ammu and the twins are responsible for Sophie's death. Chacko ejects Ammu from the house, separating Estha from her forever. Ammu dies alone in a motel at 31. Rahel moves to America for university but returns to Ayemenem after a tumultuous life. She reunites with Estha, who has lived a solitary, mute existence with Baby Kochamma. Despite their reunion, their lives remain sorrowful. The novel concludes with a reflection on Ammu and Velutha's love affair.
