The first-person narrator and protagonist, Professor Burris, is a university instructor of psychology, who is approached by a former student, Rogers, and Rogers's friend, Steve Jamnik, sometime in the late 1940s. The young men are recent veterans of World War II and, intrigued by utopianism, mention an old acquaintance of Burris, T. E. Frazier, who in the 1930s started an intentional community that still exists. Burris agrees to contact Frazier, who invites them all to stay for several days to experience life in the supposedly utopian community. Rogers brings along his girlfriend, Barbra, Steve brings his, Mary, and Burris brings a colleague named Professor Castle, who teaches philosophy and ethics.
The rest of the book proceeds largely as a novel of ideas, mostly involving Frazier, a talkative and colorful character, guiding his new visitors around the properties of the community—called Walden Two—and proudly explaining its socio-politico-economic structures and collectivist achievements, including sometimes radically new and bizarre, but apparently effective, customs mandated by the community's individually self-enforced "Walden Code." A wide range of intellectual topics such as behavioral modification, political ethics, educational philosophy, sexual equality (specifically, advocacy for women in the workforce), the common good, historiography, freedom and free will, the dilemma of determinism, American democracy, Soviet communism, and fascism are discussed and often debated among the self-satisfied Frazier, the skeptical Castle, and the intrigued Burris.
In effect, Walden Two operates using a flexible design, by continually testing the most successful, evidence-based strategies in order to organize the community. Frazier argues that Walden Two thus avoids the way that most societies collapse or grow dysfunctional: by remaining dogmatically rigid in their politics and social structure. He verifies Walden Two's success by pointing to its members' overall sense of happiness and freedom—thanks in part to a program of "behavioral engineering" begun at birth. Though the people of Walden Two are encouraged to credit all individual and group achievements to the larger community, they indeed appear to live legitimately peaceful, pleasant, and fulfilling lives.
Frazier boasts that Walden Two's decision-making system is not authoritarian, anarchic, or even democratic. Except for a small fluctuating committee of Planners, temporarily including Frazier, Walden Two has no real governing body that could or would exercise violent force to motivate its members, a feature that Frazier often praises. The members are apparently self-motivated, following a relaxed schedule of only four hours of work a day on average (with the freedom to select a new place to work each day); they use the large remainder of their time to happily engage in creative efforts or leisure activities of their own choosing.
Excitedly, Steve and Mary sign up and are soon admitted as permanent members. Meanwhile, Castle has fostered a growing hunch that Frazier is somehow presenting a sham society or is in fact a tyrannical dictator. Castle, a strong proponent of democracy, finally confronts Frazier, accusing him of despotism, though he has no definitive proof. Frazier rebuts, on the contrary, that his vision for Walden Two is as a place free of all forms of despotism, even the "despotism of democracy." Frazier and Burris sometimes talk in private, with Frazier revealing that other communities loosely associated with Walden Two have now cropped up, the most recent being Walden Six. During one conversation, Frazier correctly intuits that Burris is wary of his self-righteous personality, but urges Burris to look past this and not let this influence his opinion of Walden Two and its success as a peaceful, functional society.
By the end, the remaining visitors depart the community in a mostly impressed state of wonder, except for Castle, who has smugly settled on the truth of his conspiracy theories. During Burris's trip back to the university, he ultimately decides in an inspired moment that he wishes to fully embrace the Walden Two lifestyle. Abandoning his professorial post, Burris travels once more to Walden Two and, after a long and solitary journey of spiritual self-discovery to Walden Two on foot, he is welcomed back with open arms.