In 1961, Adult Billy Colman rescues a redbone hound from neighborhood dogs and takes it home to recover. The incident reminds him of the faithful dogs he owned as a child in the Ozark Mountains.
In 1911, Ten-year-old Billy wants nothing more than a pair of redbone hounds for coon hunting. After seeing a magazine ad for coon hounds, he spends the next two years working odd jobs to earn the $50 he needs to buy a pair of pups and walks 20 miles to Tahlequah to retrieve them. As he returns with the dogs, he sees the names "Dan + Ann" carved on a tree and names the pups Old Dan and Little Ann. With his grandfather's help, he trains the dogs to hunt.
On the first night of hunting season, Billy promises Old Dan and Little Ann that if they tree a raccoon, he will do the rest. They do so in a huge sycamore tree, which he believes is far too large to chop down. Remembering his promise, Billy spends the next two days attempting to cut down the sycamore. Exhausted, he prays for the strength to continue, whereupon a strong wind blows down the tree.
Billy, Old Dan, and Little Ann become renowned as the best hunters in the Ozarks. Billy's grandfather bets Rubin and Rainie Pritchard that Old Dan and Little Ann can tree the legendary "ghost coon" that has evaded hunters for years. After a challenging hunt, Old Dan and Little Ann succeed in treeing the ghost coon, but Billy, having seen how old and clever the animal is, decides not to kill it. Billy tries to prevent Rubin and Rainie from killing the ghost coon, and this leads to a brawl with Rubin. During the fight, Rubin's dog attacks Billy, prompting Old Dan and Little Ann to come to his aid. Rubin attempts to scare Old Dan and Little Ann away with Billy's ax, but he falls on the blade and dies. Although Billy is deeply troubled by the tragic turn of events, he does not regret his decision to spare the ghost coon.
Billy's grandfather enters him in a championship raccoon hunt against experienced hunters. The hunt is scheduled during a particularly cold week, and many of the hunters give up. Billy, who is used to harsh mountain winters, can reach the final round. On the last night, Old Dan and Little Ann trap three raccoons in a single tree, but a sudden blizzard forces Billy to take shelter. The following morning, Old Dan and Little Ann are found covered with ice but still circling the tree. All three raccoons are captured and Billy wins the championship and a $300 prize.
One night while the trio is hunting, a mountain lion attacks Old Dan and Little Ann. Billy fights to save them, but the mountain lion turns on him. The dogs kill the mountain lion, saving Billy's life, but Old Dan later dies of his injuries. Over the next few days, Little Ann loses the will to live and finally dies of grief, leaving Billy heartbroken.
Billy's father tries to comfort him by explaining that he and Billy's mother have long wished to move to a town where their children can get an education, but could not afford to do so without the extra money brought in by Billy's hunting. Knowing that Old Dan and Little Ann would suffer in town and that Billy would be devastated to leave them behind, they intended to allow him to live with his grandfather. His father believes that God took Old Dan and Little Ann as a sign that the family was meant to stay together.
On his last day in the Ozarks, Billy visits Old Dan and Little Ann's graves and finds a giant red fern growing between them. Remembering a legend that only an angel can plant a red fern, he also comes to believe a higher power was at work.
Adult Billy closes by saying that although he has never returned to the Ozarks, he still dreams of visiting Old Dan and Little Ann's graves and seeing the red fern again.
