In 1799, Colonel John Herncastle and his cousin are taking part in the British invasion of the Indian Seringapatam. They hear a story about a legendary Indian jewel called the Moonstone, which is used in Hindu religious rituals. The jewel will curse those who try to steal it, as it has three priestly guardians always following it. As they storm the Indian emperor’s palace, Herncastle’s cousin sees Herncastle in the armory with a large jewel in his hand, after murdering the Indian guards. Upon return, Herncastle’s belligerent manners estrange him from the family.
The story fast-forwards 50 years to England, off the Yorkshire coast. Lady Verinder, Colonel Herncastle’s sister, is a widow living with her daughter in her estate by the coast. Her steward, Gabriel Betteredge, narrates the first period. Rachel’s 18th birthday is coming up, and one of the guests is her cousin Franklin Blake, who has just finished his education abroad on Continental Europe. He arrives before her birthday, carrying Rachel’s birthday present: her uncle’s Diamond. Before Herncastle died, he had Franklin Blake’s father promise to give Rachel the Moonstone for her birthday, provided that her mother were still alive. Lady Verinder wonders if this is revenge for her poor relations with her brother. Franklin feels that he is being followed on his way from London, and three Indian jugglers keep showing up in the area.
Franklin and Rachel fall in love during his stay before her birthday celebration. He gives her the Diamond on her birthday, which she wears during the party, even when the three Indians show up. Her cousin Godfrey Ablewhite, also interested in her, attends the party; so does the well-traveled adventurer Mr. Murthwaite, and Mr. Candy, the local doctor. Godfrey proposes to Rachel before the dinner, but is refused. Franklin and Mr. Candy become engaged in an argument over the uses of modern medicine over Rachel’s birthday dinner. Franklin has been sleeping poorly after quitting smoking for Rachel, and Mr. Candy urges him to take something, but Franklin refuses.
The next morning, after storing her Diamond in her unlocked cabinet, Rachel’s Diamond is missing. The local police are called, but prove incompetent; Franklin calls in the famous Sergeant Cuff from London. Together with Betteredge, Cuff undertakes a careful investigation. He first investigates a smear on the wet door paint of Rachel’s sitting room, but no one can find the garment that has the smear on it. He is suspicious of Rosanna Spearman, a former thief turned second housemaid, as well as Rachel herself, who has been acting strangely ever since the Diamond was discovered to be missing. Previously having been affectionate of Franklin, Rachel now speaks to him harshly. Cuff wonders if Rachel has stolen the Diamond herself in order to pay off debts for a double life, and has used Rosanna, the girl with the questionable past, to help her.
Rosanna has also been acting suspicious; Betteredge’s daughter Penelope thinks she is in love with Franklin. Rosanna is also spotted out running errands after she said she was in her room, ill. After paying a visit to the fishing village called Cobb’s Hole, Cuff discovers that Rosanna has purchased chains and a metal box, and has been near the quicksand area of the coast called the Shivering Sand—he believes that something is hidden in the quicksand.
Rachel wants to leave to go to London, finding it unbearable to have Cuff in the house with her. She refuses to speak to both Cuff and Franklin when she heads off to stay with the Ablewhites. Rosanna, hiding in shrubbery, overhears Cuff asking Franklin about his opinion on Rosanna; Franklin, of course, is not interested in her. Cuff and Betteredge then go looking for Rosanna, and find that she committed suicide in the quicksand, although she left a note with her friend Lucy Yolland. Lucy will only give the letter to Franklin Blake in person. After being left by Rachel, Franklin is restless and leaves to travel the Continent for a year. Godfrey also goes back to London.
Cuff tells Lady Verinder his suspicions; Lady Verinder refuses to believe that her daughter would commit such a crime, but agrees to tell her daughter of Rosanna’s suicide, to see if it will elicit any reaction. Cuff leaves the investigation, the Lady goes to London to be with her daughter, and the narration is handed over to Drusilla Clack, Lady Verinder’s niece.
Clack is visiting Lady Verinder in London when she discovers that her aunt is deathly ill; she witnesses Lady Verinder’s Will along with her lawyer Mr. Bruff. She overhears Godfrey propose again to Rachel; this time Rachel accepts, even though she admits she is still heartbroken over someone else, someone who has done something unthinkable. Godfrey, as well as the infamous pawnbroker Septimus Luker, has also recently been part of London headliner news: the two were separately blindfolded, gagged, and searched—but by the same people, most likely a band of Indians. Many people think Godfrey took the Moonstone, and pawned it with Septimus Luker, but Rachel declares him innocent, saying she knows who took the Diamond.
During Godfrey’s proposal, Lady Verinder passes away. Rachel goes to stay with Mr. Bruff, but finds out from him that Godfrey is marrying her for money, and that he has already examined his mother’s Will (which protects her from this kind of being taken advantage of). She breaks off the engagement, and is kicked out of the Ablewhites’s residence by Mr. Ablewhite.
The narration is handed over to Mr. Bruff; Rachel stays with the Bruffs in the interim. During this time, Mr. Bruff becomes certain that Septimus Luker has had the Diamond pledged to him. In a run-in with Mr. Murthwaite, who is familiar with the religion and practices of the Indians, the adventurer tells him that the Indians are waiting for the pledge’s 1-year run to expire, before taking the Diamond back.
The narration is handed over to Franklin Blake, who is in charge of putting together the entire narrative of the story. Franklin becomes heir to fortune after his father’s death; he returns to England and decides to take up the mystery again. Visiting Betteredge in Yorkshire, he receives and reads Rosanna’s letter from Lucy. Rosanna was indeed in love with Franklin, and she had found out that the stained nightgown was Franklin’s. Assuming that he was the thief, she went at lengths to protect his supposed guilt, hiding the nightgown in the box in the Shivering Sand, and dropping him cryptic hints. Franklin did not notice any of this, and when Rosanna overheard that he had no interest in her, she committed suicide after a miserable life. Franklin, who knows that he did not steal the Diamond, takes this evidence to Bruff. They realize that Rachel’s behavior is because she thinks Franklin took the Diamond. They arrange a meeting at Bruff’s house, and Rachel tells Franklin that she saw him take the Diamond with her own eyes that night. Although they are still in love, he leaves, brokenhearted.
Franklin tries to contact Cuff and Godfrey, as well as the other guests at the party, but Cuff is in Ireland and Godfrey is on the Continent. He is told that Mr. Candy, the doctor, would like a word with him. Franklin goes to the doctor’s, but finds that Mr. Candy is hard of remembering and articulation after he contracted a fever the night of Rachel’s birthday. He befriends the doctor’s assistant, a strange-looking man named Ezra Jennings, and he learns that Ezra Jennings also has a false accusation against him, and that the man is slowly dying of a sickness. Ezra Jennings reveals Mr. Candy’s delirious ramblings to Franklin, saying that he had put opium in Franklin’s nightly drink to help him sleep better, as a practical joke. Ezra Jennings is familiar with the unexpected effects of opium, as he takes it regularly to quell his pain. He suggests that Franklin might have taken the Diamond unknowingly that night, under stress of its not being locked away, and under the effects of the opium. He proposes a reenactment experiment of that night, which proves his theory right.
While Franklin and Rachel are now reconciled and Franklin is absolved of his unknowing theft, the mystery remains as to how the Diamond got to London under pledge to Mr. Luker. Franklin and Bruff travel to London on the day the Diamond is to be redeemed, and try to intercept Mr. Luker’s coming out of the bank. Unfortunately, they follow the wrong man and go home empty-handed. However, one of Mr. Bruff’s workers, a boy named Gooseberry, follows the right man, a dark, tall sailor, to an inn. Sergeant Cuff shows up the next morning at Franklin’s residence, and the three men, with Gooseberry, go to the inn only to find that the dark sailor has been murdered in his bed. The dark sailor is Godfrey Ablewhite in disguise; he had run into the delirious Franklin the night of Rachel’s birthday party; when Franklin gave him the Diamond to deposit in his father’s bank, he had pocketed it instead. Godfrey led a double life and was in need of funds to repay trust funds he had squandered (which was also why he proposed, originally, to Rachel). Godfrey had pawned the Diamond with Luker, and was going to take it to Amsterdam to be cut up, and collect the money. The Indians had tracked him as well, murdered him, and are on their way back to their country.
The Indians successfully get away despite Cuff’s preventive measures, such as calling up authorities in Bombay and sending men after them. Franklin and Rachel marry and are expecting a child; Ezra Jennings dies of his illness, and Mr. Murthwaite resumes his adventures in India. On one such journey, he witnesses the Moonstone back in its proper place on the statue of the moon deity, and watches the three Indian priests part on their respective pilgrimages.