Dr. Austin Sloper, a wealthy and highly successful physician, lives in Washington Square, New York with his daughter Catherine. Catherine is a sweet-natured young woman who is a great disappointment to her father, being physically plain and, he believes, dull in terms of personality and intellect. His sister, Lavinia Penniman, a meddlesome woman with a weakness for romance and melodrama, is the only other member of the doctor's household.
One day, Catherine meets the charming Morris Townsend at a party and is powerfully drawn to him. Townsend courts Catherine. Sloper strongly disapproves, believing Townsend to be a 'selfish idler' who is after Catherine's money alone. Penniman, however, regards the situation as romantic, and continually meddles in an attempt to bring the two together.
When Townsend and Catherine announce their engagement, Sloper investigates Townsend's background, and believes him to be a parasitic spendthrift. Sloper forbids his daughter to marry Townsend, telling her that he will disinherit her if she does. Sloper largely intends this threat as a stratagem to flush Townsend out: if Townsend responds by breaking off the engagement, not only will Sloper have succeeded in preventing the marriage, but his assessment of Townsend's character will also be proven correct. Townsend, however, suspects that Sloper is bluffing, and that he will not leave his daughter penniless — indeed this question is left unanswered even to the reader. Townsend therefore continues the engagement, but repeatedly defers scheduling the wedding.
Catherine too continues the engagement, and this represents the first time that she has stood against her father's wishes. Arrogantly certain of getting his way eventually, Sloper finds an urbane entertainment in the situation, simultaneously pitying his daughter and yet treating the circumstances as a sport. Meanwhile Penniman continues to undermine Sloper's efforts to keep the two apart.
In an attempt to weaken Catherine's emotional connection to Townsend, Sloper takes Catherine on a twelve-month grand tour of Europe. During their time abroad, he mentions Catherine's engagement only twice: once while they are alone together in the Alps, and again on the eve of their return voyage. On both occasions, Catherine holds firm in her determination to marry. After she refuses for a second time to give Morris up, Sloper sarcastically compares her to a sheep fattened up for slaughter. With this, he finally goes too far: Catherine recognizes his contempt, withdraws from him, and prepares to bestow all her love and loyalty on Morris.
Upon her return, however, Morris, whom Penniman has now, at least emotionally, virtually adopted as her son, breaks off the relationship when Catherine tells him that her father will never relent, because Morris is "afraid of being the cause of an injury to Catherine." Thus Sloper believes he is proven right about Townsend, but only after he has irrevocably lost Catherine's regard.
Catherine, devastated, eventually recovers her equanimity but is never able to recapture her naiveté. Many years pass; Catherine refuses two respectable offers of marriage and grows into a middle-aged spinster. Dr. Sloper finally dies and leaves her a sharply reduced income in his will out of fear that Townsend will reappear. In fact, Townsend — now fat, balding, cold-eyed, but still somewhat attractive — does eventually pay a call on Catherine, hoping to reconcile; but she calmly rebuffs his overtures. In the last sentence, James tells us that "Catherine,... picking up her morsel of fancy-work, had seated herself with it again — for life, as it were."