The Satanic Verses consists of a frame narrative, using elements of magical realism, interlaced with a series of sub-plots that are narrated as dream visions experienced by one of the protagonists. The frame narrative, like many other stories by Rushdie, involves Indian expatriates in contemporary England. The two protagonists, Gibreel Farishta and Saladin Chamcha, are both actors of Indian Muslim background. Farishta is a Bollywood superstar who specialises in playing Hindu deities. (The character is partly based on Indian film stars Amitabh Bachchan and N. T. Rama Rao.) Chamcha is an emigrant who has broken with his Indian identity and works as a voiceover artist in England.
At the beginning of the novel, both are trapped in a hijacked plane flying from India to Britain. The plane explodes over the English Channel, but the two are magically saved. In a miraculous transformation, Farishta takes on the personality of the archangel Gibreel and Chamcha that of a devil. Chamcha is arrested and passes through an ordeal of police abuse as a suspected illegal immigrant. Farishta's transformation can partly be read on a realistic level as the symptom of the protagonist's developing schizophrenia.
Both characters struggle to piece their lives back together. Farishta seeks and finds his lost love, the English mountaineer Allie Cone, but their relationship is overshadowed by his mental illness. Chamcha, having miraculously regained his human shape, wants to take revenge on Farishta for having forsaken him after their common fall from the hijacked plane. He does so by fostering Farishta's pathological jealousy and thus destroying his relationship with Allie. In another moment of crisis, Farishta realises what Chamcha has done, but forgives him and even saves his life.
Both return to India. Farishta kills Allie in another outbreak of jealousy and then commits suicide. Chamcha, who has found not only forgiveness from Farishta but also reconciliation with his estranged father and his own Indian identity, decides to remain in India.
Embedded in this story is a series of half-magic dream vision narratives, ascribed to the mind of Farishta. They are linked together by many thematic details as well as by the common motifs of divine revelation, religious faith and fanaticism, and doubt.
One of these sequences contains most of the elements that have been criticised as offensive to Muslims. It is a transformed re-narration of the life of Muhammad (called "Mahound" or "the Messenger" in the novel) in Mecca ("Jahilia"). At its centre is the episode of the so-called satanic verses, in which the prophet first proclaims a revelation in favour of the old polytheistic deities, but later renounces this as an error induced by Shaitan. There are also two opponents of the "Messenger": a demonic heathen priestess, Hind, and an irreverent skeptic and satirical poet, Baal. When the prophet returns to the city in triumph, Baal goes into hiding in an underground brothel, where the prostitutes assume the identities of the prophet's wives. Also, one of the prophet's companions claims that he, doubting the authenticity of the "Messenger," has subtly altered portions of the Quran as they were dictated to him.
The second sequence tells the story of Ayesha, an Indian peasant girl who claims to be receiving revelations from the Archangel Gibreel. She entices all her village community to embark on a foot pilgrimage to Mecca, claiming that they will be able to walk across the Arabian Sea. The pilgrimage ends in a catastrophic climax as the believers all walk into the water and disappear, amid disturbingly conflicting testimonies from observers about whether they just drowned or were in fact miraculously able to cross the sea.
A third dream sequence presents the figure of a fanatic expatriate religious leader, the "Imam", in a late-20th-century setting. This figure is a transparent allusion to the life of Ayatollah Khomeini in his Parisian exile, but it is also linked through various recurrent narrative motifs to the figure of the "Messenger".