Beloved begins in 1873 in Cincinnati, Ohio, with Sethe, a formerly enslaved woman, and her 18-year-old daughter Denver, who live at 124 Bluestone Road. The site has been haunted for years by what they believe is the ghost of Sethe's eldest daughter. Denver is shy, friendless, and housebound. Sethe's sons, Howard and Buglar, ran away from home by the age of 13, which she believes was due to the ghost. Baby Suggs, the mother of Sethe's husband Halle, died soon after the boys fled, eight years before the start of the novel.
One day, Paul D, one of the enslaved men from Sweet Home, the plantation where Sethe, Halle, Baby Suggs, and several others were once enslaved, arrives at Sethe's home. He forces out the spirit, receiving Denver’s contempt for driving away her only companion, but persuades them to leave the house together for the first time in years for a carnival. Upon returning home, they find a young woman sitting in front of the house who calls herself Beloved. Paul D is suspicious and warns Sethe, but she is charmed by the young woman and ignores him. Denver is eager to care for the sickly Beloved, whom she begins to believe is her older sister come back.
Paul D begins to feel increasingly uncomfortable in the house and that he is being driven out. One night, Paul D is cornered by Beloved, who demands sex. While they have sex, his mind is filled with horrific memories from his past. Paul D tries to tell Sethe about it, but cannot. Instead, he says that he wants her pregnant. Sethe is afraid to have to live for a baby. When Paul D tells friends at work about his plans to start a new family, they react fearfully. One, Stamp Paid, reveals the reason for the community's rejection of Sethe.
Paul D confronts Sethe, who tells him that after escaping from Sweet Home and joining her children at 124, four horsemen came to return her children and her to a life of slavery at Sweet Home. Sethe ran to the woodshed with her children and tried to kill them all, but only had time to kill her eldest daughter. Sethe says that she was "trying to put [her] babies where they would be safe." Paul D leaves, telling her her love is "too thick"; she retorts that "thin love is no love", adamant that she did the right thing.
Sethe comes to believe that Beloved is the daughter she had killed, as "BELOVED" was all she could afford to have engraved on her tombstone. She is overjoyed, holding onto a hope that Halle and her sons will come back and they will all be a family together. Out of guilt, she begins to spend all of her time and money on Beloved to please her and try to explain her actions, and loses her job. Beloved becomes angry and demanding, throwing tantrums when she does not get her way. Beloved's presence consumes Sethe's life. She hardly eats, while Beloved grows bigger and bigger, eventually taking the form of a pregnant woman. Denver reveals her fear of Sethe, having known that she killed Beloved, but not having understood why, and that her brothers shared this fear and ran away due to it. Sethe and Beloved's voices merge together until indistinguishable, and Denver observes that Sethe becomes more like a child, while Beloved seems more like the mother.
Denver reaches out to the Black community for help, from whom they had been isolated because of envy of Baby Suggs' privilege and horror at Sethe killing Beloved. Local women come to the house to exorcise Beloved. At the same time, a White man, Mr. Bodwin (their landlord, who had offered work to Baby Suggs and Sethe) arrives at the house on a horse for Denver, who asked him for a job. Not knowing this, Sethe attacks him with an ice pick, thinking he was Schoolteacher coming back for her daughter. The village women and Denver hold her back and Beloved disappears.
Denver becomes a working member of the community, and Paul D returns to a bed-ridden Sethe, who, devastated at Beloved's disappearance, remorsefully tells him that Beloved was her "best thing". He replies that Sethe is her own "best thing", leaving her questioning, "Me? Me?" As time goes on, those who knew Beloved gradually forget her until all traces of her are gone.