Ponyboy Curtis, the fourteen-year-old narrator, lives with his older brothers Sodapop and Darry, since their parents passed away in a car accident. They are all members of a Greaser gang, meaning they are considered hoods or juvenile delinquents by society. Other than being financially and socially disadvantaged, the Greasers' main problem is getting jumped by the Socs, the rich kids from the West Side. The other members of the Greaser gang are Johnny Cade, Dally Winston, Two-Bit Mathews, and Steve Randle.
One night at the drive-in theater, Ponyboy, Johnny, Two-Bit, and Dally meet Cherry Valance and Marcia, two Soc girls whose boyfriends have left them there. Ponyboy makes a connection with Cherry because they can both appreciate sunsets; it is a bond that crosses their social boundaries and links their worlds. On the walk home, Bob Sheldon and Randy Adderson, the girls' boyfriends, accost the group and take the girls home.
Later that night, Ponyboy and Johnny accidentally fall asleep in their favorite vacant lot. Ponyboy runs home, but when Darry scolds him and hits him for the first time, he goes back to find Johnny. They are jumped by Bob, Randy, and other Socs, and during the fight Johnny stabs and kills Bob to stop him from drowning Ponyboy in a fountain. Panicked, Ponyboy and Johnny find Dally, who they know will help them. He gives them some money and a gun and tells them to get on a train to Windrixville and hide out in a deserted church.
Ponyboy and Johnny stay at the church for about a week, during which time they cut off their long Greaser hair as a disguise and subsist mainly on baloney. Dally comes to meet them eventually, and takes them out to get burgers. While they are out, Johnny decides to turn himself in. But when the characters get back to the church, they find it's on fire. A school group had been having a picnic there, and some children are trapped inside. Ponyboy and Johnny run in and save the children, but Johnny is caught across the back by a burning piece of timber.
Soda and Darry come to the hospital to pick up Ponyboy, and they learn that Dally's arm is burned and Johnny is in critical condition. The boys go home because there is a rumble against the Socs that they need to attend. Ponyboy feels sick, but decides to go to the rumble anyway. Dally escapes from the hospital to fight in the rumble, and the Greasers win.
Dally takes Ponyboy back to the hospital to visit Johnny, who is dying. Before he dies, Johnny tells Ponyboy, "Stay gold," meaning he shouldn't lose the innocence of childhood, and should avoid becoming hardened like Dally. Dally is extremely emotional after Johnny's death, since he loved Johnny, and runs off. Ponyboy is feeling even sicker, but has to go home and tell the rest of the gang that Johnny is dead.
Dally calls the Curtis house from a payphone to say that he's robbed a grocery store and the cops are chasing him. The whole gang runs to the vacant lot, and sees Dally approaching from the other side, followed by cop cars. Dally pulls out his gun on the cops, and they shoot him, killing him. Ponyboy passes out and is delirious and sick for the rest of the weekend.
He wakes up in bed, and is in denial over Johnny's death. He has to go to court to testify about the events surrounding it, and is acquitted and allowed to continue living with Darry and Soda, rather than being sent to a boys' home. But things are not the same for him; his world is upside-down, and his grades start to slip. Darry confronts Ponyboy and brings up his failing grades, and a huge fight commences between them. Soda is upset by all the fighting, and runs out of the house.
Darry and Ponyboy find Soda in the vacant lot, and he tells them he can't stand how they fight all the time, since they'll only survive if they stick together. All they have is each other. Darry and Ponyboy hadn't realized their fighting upset Soda so much, and they vow to get along and take care of each other. Ponyboy has to decide what to write about for his semester theme in English class, and he decides to write The Outsiders as a warning to other boys at risk to turn their lives around before it's too late.