Phillip Pullman’s The Subtle Knife begins after his previous novel, The Golden Compass, left its readers with Lyra Belaqua passing through a tear in her universe and on to another. The story begins not in Lyra’s world, but in our own, where young Will Perry cares for his sick mother in his world’s version of Oxford. Will is pursued by shadowy men claiming to be from the government, and is forced to leave his mother with his old piano teacher in order to keep her safe. He returns home but finds that then men are already there, searching for letters exchanged by Will’s parents. Will himself finds the letters and flees, killing one of the men in the process. Will manages to escape the men when he stumbles upon an “anomaly” taking the form of a sort of tear in the fabric of reality. He passes through it into another world, and there encounters Lyra, who is shocked at his lack of a daemon.
Meanwhile, the witch Serafina Pekkala is searching for her clan, when she comes across Mrs. Coulter’s boat in the North Sea. Making herself invisible, Serafina boards the ship and discovers Mrs. Coulter has captured a witch and is torturing her for information on Lyra. Seeing her fellow witch is close to breaking, Serafina reveals herself and kills her before she can speak. She then flees the ship and rejoins her clan, who has since joined up with another ally of Lyra’s, aeronaut Lee Scoresby. Lee is looking for the famous arctic explorer Stanislaus Grumman, and the witch queen Ruta Skadi decides to accompany Serafina on her quest to find Lyra (though she herself is seeking Lord Azriel).
Back in the other world, Will and Lyra encounter a young girl named Angelica and her brother Paolo, who give them some information about their location. They say the city is called Cittàgazze (or Ci’gazze), and that its is overrun with shadowy creatures known as specters, which feed on the souls of the adults in the area, leaving them empty and existing in sort of a walking coma. Lyra and will eventually choose to return through the anomaly to Will’s Oxford, where Will hopes to find information on his missing father, arctic explorer John Perry, and Lyra hopes to find a physicist who can help her learn more about Dust. Using Lyra’s alethiometer, the children find their way to Dr. Mary Malone, who is a specialist in the interstellar particles known as dark matter. Mary and her partner Oliver Payne have discovered a substance they refer to as shadows, which shares many characteristics of Dust. Mary and Oliver have discovered that the shadows are conscious, and are attempting to communicate with them in some way.
The next day Lyra makes the mistake of giving some police officers information on Will. After accepting a ride from a man identifying himself as Sir Charles Latrom, Lyra discovers that her alethiometer has men stolen, and Sir Charles insists he will not return it until Will and Lyra retrieve a knife for him in Cittàgazze. After successfully retrieving the knife (during which Will is badly injured), its former owner, Giacomo Paradisi, reveals its true power: it can cut through any material, including the barriers between worlds. Will then uses the knife to cut a doorway through to Sir Charles’ home. He and Lyra hide, and overhear a conversation between Sir Charles and Mrs. Coulter, revealing Sir Charles real identity as Lord Boreal, a man from Lyra’s world who came to Will’s long ago.
Back in Lyra’s world, Lee Scoresby has found Stanislaus Grumman, who reveals himself to be none other than John Perry. He is seeking the subtle knife, unaware that Will is it’s bearer, and enlists Lee’s help in finding it. Back in Cittàgazze, Lyra and Will are attacked by a mob of children, but soon rescued by Serafina and her clan. In Will’s world, Mary has learned to communicate with the shadows, and learns she must help Will and Lyra. John and Lee travel in Lee’s balloon to find the knife bearer, but soldiers of the Church in their own zeppelins pursue them. John manages to take out three of the zeppelins, but the fourth lands, and Lee dies attempting to hold off the soldiers while John runs to find the knife bearer. Will and Lyra press north with the witches.
Mrs. Coulter manages to capture another witch, and after a long and tortuous questioning, she reveals the witches believe in a prophesy in which Lyra is the new Eve, and will lead humanity to another great fall from grace. That same night, Will leaves the camp and encounters John Perry, and the two realize their familial connection almost simultaneously. John tells Will that the subtle knife is the most powerful weapon in the world, that it is the only weapon that can destroy God, and that Will must find Lord Asriel and force the ultimate confrontation between good and evil.
Unfortunately, they are interrupted by a witch who once loved John but was rejected by him. She kills John and then herself, and Will is left bereft. He returns to camp only to find the witches are gone, two angels have arrived, and the only sign left of Lyra is her alethiometer.