The story opens on Christmas Eve with Vanka, a poor orphan of the age of nine, sitting down to write a letter to his grandfather; this man works as a night watchman for the Zhivarev family estate and resides in an unidentified village in Russia. Vanka has been transferred to new masters in Moscow to live with the family of Alyakhin the shoemaker. This lifestyle oppresses the little orphan, who grows frustrated with the situation and tries to contact his grandfather to ask for help.
As he writes the letter, Vanka recalls his jesting, lively grandfather and his life at the village before he was apprenticed to this new home. The young boy recollects the two dogs, Kashtanka and Eel, who follow his grandfather around the estate and sometimes partake of the grandfather's snuff. As he writes, Vanka also records some of the harsh treatment that he has received at the hands of Alyakhin, Alyakhin's wife, and the older apprentices. A lifestyle of beatings, scoldings, mockery, and unsatisfactory food has driven Vanka to crave escape; he writes that, if he is rescued from Alyakhin, he will protect his grandfather and gladly perform odd jobs.
Vanka also describes some of the goods available in the Moscow shops. Yet his thoughts are dominated by memories of a Christmas at the Zhivarev household, when Vanka had accompanied his grandfather into a nearby forest to cut down a Christmas tree. Olga Ignatyevna, a lively young woman from the Zhivarev family, had decorated the tree; she is also dear to Vanka because she taught him to read, write, count, and dance. However, after his mother's death, Vanka was sent out of Olga's company and then transferred to Alyakhin's premises. Overcome with emotion, Vanka returns to his letter, writing out a plea for his grandfather to take him away. He also, however, sends his regards to a few people from his former life in the village.
After the letter is finished, the little boy puts down the name of his grandfather, Konstantin Makarich. For the address, he writes down "the village." (He is not aware of the fact that letters, in order to be sent, need to be stamped.) In good hopes, Vanka rushes into the street, throws the letter into the nearest post-box, and then goes back to Alyakhin's to sleep, happily dreaming about his grandfather sitting by the stove and reading the letter to the cooks.