Ceremony begins with a poem invoking the constructive power of stories, and calling on ritual and ceremony as forces that can stand against evil influences. After this, the main prose narrative begins. Tayo, a young World War II veteran and member of the Laguna Pueblo American Indian community, has just spent a restless night on his community's reservation. He is haunted by his memories of his cousin Rocky; the two of them had fought together in the American campaign against the Japanese, but Rocky had been captured by the Japanese and executed.
Tayo suffered from nausea, weakness, and feelings of severe depression and alienation after his return. At the start of the novel, he lives apart from his relatives Auntie (Rocky's mother) and Old Grandma. Tayo, however, occasionally accompanies the other young men who returned from the war on drinking binges. A fellow veteran named Harley seeks Tayo out in his remote residence and invites him for beers; Tayo accepts, but remembers an earlier altercation at a local bar. After returning from the war, the sensitive Tayo had attempted to kill a fellow Laguna veteran named Emo, who was known both for his bloodthirsty ways and for his contempt for Tayo's half Native American, half Mexican heritage.
The focus of the narrative then switches to Tayo's memories of his family. Tayo has lost other loved ones. His mother, who at one point lived in near-poverty and was a source of shame to Auntie, died when he was fairly young. More recently, Tayo's uncle Josiah died after making an unsuccessful attempt to raise cattle on Laguna land. Back in the main current of the action, Tayo leaves the bar without Harley; eventually, he makes his way back to Auntie's household. In consultation with Auntie's husband Robert, Tayo decides to undertake a course of action that will re-connect him with local culture and, perhaps, restore him physically and psychologically.
Robert and Tayo make their way to see Betonie, a local medicine man. Betonie appears, Robert departs, and Tayo experiences doubts that his trip to the healer will be effective. Eventually, though, Betonie and Tayo have a candid conversation about how white American culture has disrupted and destroyed Native American communities; Tayo is even able to discuss Rocky's demise. This conversation sets up one of Silko's longer poems, about how a council of witches used white humans to unleash corruption upon the world, and then leads into Betonie's own account of his mixed-ethnicity family.
Tayo leaves Betonie and soon runs into some of his young, reckless peers: Harley, Leroy, and a young woman named Helen Jean, who has left her family behind in a desperate attempt to make money by appealing to men. The four of them make their way to a bar. There, Helen Jean falls into the company of a group of Mexicans, Harley gets into a fight, and Tayo realizes that the lifestyle of drink and debauchery that he is witnessing cannot be sustained.
In short order, Tayo sets off on an unexpected quest: to find Josiah's cattle. Silko prefaces Tayo's journey with a symbolic poem about a destructive trickster named Kaup'a'ta the Gambler, who is finally defeated by the Sun in a contest of wits. On his quest, Tayo meets a young woman and recognizes a group of stars that Betonie had pointed out. These are signs that he is on the right track; eventually, he finds the cattle on the property of a white man named Floyd Lee. Two men who patrol the land on Lee's behalf capture Tayo, but then let him go free because they want to hunt down a mountain lion.
Tayo is able to successfully direct the cattle back to his community. When spring comes, he goes to look after them and once more encountered the young woman from his earlier quest. She reveals that her name is Ts'eh. Together, they pass a peaceful time, immersed in nature and content in each other's company. Robert soon arrives, though, and explains that Tayo's absence from society has given rise to rumors that Tayo has lost his mind. These rumors can be traced to Emo, who rounds up Harley, Leroy, and another man named Pinkie in order to hunt Tayo down. Tayo eludes them but keeps them in his sight; Emo blames Harley for letting Tayo get away, and the hidden Tayo watches as Emo tortures Harley as punishment. As he witnesses the gruesome scene, Tayo is tempted to murder Emo, but realizes that killing his enemy would be futile and self-destructive.
At the end of the novel, the corpses of Harley and Leroy are discovered together. Tayo returns to see Auntie and Old Grandma; he learns that Emo has also killed Pinkie, and has consequently been sent away to California. Ceremony ends with one final poem, which indicates that evil forces and other "witchery" have been dispelled, or at least rendered dormant, for the time being.
