Jesse “Jess” Aarons is a 12-year-old aspiring artist living with his financially struggling family, consisting of his parents, Jack and Mary, and his sisters, Brenda, Ellie, May Belle, and Joyce, in Lark Creek. He rides the bus to school with May Belle, where he avoids the school bully, Janice Avery. In class, Jess is also bullied by his classmates Scott Hoager and Gary Fulcher. One day, a new student by the name of Leslie Burke joins the class. At recess, Jess enters a running event, for which he has been training at home. Leslie also enters and manages to win, much to Jess' irritation. On the way home, Jess and Leslie learn they are next-door neighbors. Jess has a difficult relationship with his father, who spends more time with May Belle. Due to their financial struggles, Mary also forces him to wear his older sisters' sneakers. One day at school, Leslie compliments Jess' drawing ability, and the two become friends.
After school, they venture into the woods and swing across a creek on a rope. Jess and Leslie find an abandoned treehouse on the other side and invent a new world, which they call Terabithia. For the next few days, Jess and Leslie spend their free time in the treehouse getting to know each other. Leslie gives Jess an art kit on his birthday. Jess becomes angry with his father for his attitude toward him, and he loses his belief in Terabithia, refusing its existence the next day at school. Later, Jess apologizes to Leslie by giving her a puppy, whom she names Prince Terrien (P.T.).
Once in Terabithia, they encounter various creatures, including a giant troll resembling Janice, squirrel-like creatures resembling Hoager called "Squogers", and "Hairy Vultures" resembling Fulcher. At school, Leslie becomes frustrated by Janice's bullying. Jess and Leslie play a prank on Janice, and she is embarrassed in front of everyone on the bus. Leslie introduces Jess to her parents, Bill and Judy, and they help paint their house. At school, Leslie discovers from Janice that her bullying is due to her abusive father, and the two become friends, with Janice later befriending Jess as well. Jess and Leslie take P.T. to Terabithia, where they fight off the Dark Master's creatures resembling their bullies, this time with the troll as their ally.
The next morning, Ms. Edmunds, the music teacher Jess has a crush on, calls to invite him on a one-on-one field trip to an art museum. When Jess returns home, Jack reveals that Leslie died after hitting her head in the creek when the rope she used snapped. Jess first denies it and runs to check on Leslie, but he notices the severed rope as well as emergency vehicles surrounding her house before eventually accepting her death. The following day, Jess and his parents visit the Burke family to pay their respects. Bill tells Jess that she loved him and thanks him for being the only friend she ever had, since she never had friends at her old school. Jess feels overwhelming guilt for Leslie's death, lashing out at both Hoager and May Belle. He imagines the Dark Master from Terabithia chasing after him before breaking down into tears, but the Dark Master ends up being an illusion of his father. Jack comforts and consoles his son, apologizing for not supporting him, reassures him that Leslie's death was not his fault, and implores him to continue his adventures to keep her memory alive.
Jess decides to re-imagine Terabithia and builds a bridge across the river to welcome a new ruler. He apologizes to May Belle for snapping at her and then invites her to Terabithia, where the siblings agree to rule together, with Jess as the king and May Belle as the princess.
