Shortly before moving to the communist community of Blithedale in the mid-1800s, Miles Coverdale is approached by Moodie (an apparent beggar) who asks him for a favor. Though willing, Moodie suddenly decides he will ask an older, more experienced man and departs. Miles then explains the legend of the mysterious Veiled Lady: a popular clairvoyant who recently stopped doing public shows. He leaves for Blithedale without his acquaintance Hollingsworth, who arrives later with a frail, timid girl named Priscilla. They are welcomed by Mr. and Mrs. Silas Foster (a gruff, experienced farmer) and Zenobia, an uncharacteristically beautiful and charming woman who immediately enchants Coverdale, Hollingsworth and Priscilla.
Coverdale becomes severely ill and is bedridden. During his sickness, he develops a closeness with Hollingsworth, who cares for him. Meanwhile, Hollingsworth has also become close with Zenobia, and they plan to build a cottage together. Moodie approaches Coverdale in the fields one day and asks about Priscilla and Zenobia, but declines to see them when he hears they are good friends. During a walk, Coverdale encounters a man named Westervelt, whom he immediately dislikes. He asks to see Zenobia, but only in a private way. Coverdale gives him some instruction but wonders about his motives. Shortly thereafter Coverdale sees and overhears Westervelt walking with Zenobia and assumes them to be arguing about some past encounter.
Later, Zenobia tells a story titled "The Silvery Veil" in which she theorizes that Priscilla, whose background is a mystery, may, in fact, be the Veiled Lady. Afterwards, Coverdale, Hollingsworth, Zenobia and Priscilla meet at Eliot's Pulpit, a distinctive rock they habitually visit. There they discuss women's rights, and Zenobia surprisingly sides with Hollingsworth (and against Coverdale) on a misogynistic point of view of women's roles. As they leave the Pulpit, Coverdale witnesses a moment of affection between Zenobia and Hollingsworth.
Coverdale and Hollingsworth's disagreements intensify the next day when they discuss their hopes for the future of Blithedale - Hollingsworth, who has devoted himself to criminal rehabilitation, hopes to establish a facility for that purpose on the farm. When Hollingsworth indicates that Coverdale is either "with him or against him" in this effort, Coverdale refuses to assist him and effectively ends their friendship. Coverdale decides to seek respite from the tumultuous relationships at the farm and leaves for the city.
In the city, Coverdale idly looks out from his hotel window into a boarding house and thinks he sees Priscilla; in another room, he surely sees Zenobia and Westervelt. They see him, so he goes to visit. Zenobia confirms that Priscilla is there, but Westervelt abruptly indicates that they must leave, and take Priscilla with them. Suspicious, Coverdale seeks out Moodie. Moodie explains that his name used to be Fauntleroy, and he was a wealthy man. His first daughter was Zenobia. He fell into financial ruin and left her to be raised by his still-wealthy uncle (who died, leaving her considerable wealth). Later, he remarries a pauper woman, and fathers Priscilla. Her unusual ways gain the attention of a "wizard," who has an odd relationship with her. In some way, he manages to get a message to Zenobia and entreats her to look out for Priscilla, but does not reveal that they are related.
Coverdale is extremely shocked and proceeds to a show of the Veiled Lady, where he recognizes Westervelt as the "wizard." Hollingsworth is also in the audience. When Coverdale asks Hollingsworth where Priscilla is, he goes up on stage, removes the veil and takes her away. The three return to Blithedale immediately; Coverdale returns later. Upon his return, he dreads seeing the three and takes a circuitous path through the trees. There he witnesses a bizarre scene of the community dressed as witches, fairies and other creatures; when he laughs, they chase him and he runs toward Eliot's Pulpit. There he finds his three companions; Zenobia indicates that he has just missed a "trial" of some sort conducted by Hollingsworth. She proceeds to accuse him of selfishness and heartlessness and he angrily leaves with Priscilla, who follows him obediently. Zenobia begins to weep bitterly.
When she recovers, she tells Coverdale that she will eventually get over it but will leave Blithedale immediately. She says she will become a nun and asks Coverdale to tell Hollingsworth he has "murdered" her. She leaves and Coverdale falls asleep under the rock. When he awakes at midnight, he proceeds to Hollingsworth's cottage and asks for his help; Silas Foster also wakes up and is asked to help. Leading them to a familiar spot by the river and reflecting on her words, Coverdale reveals he believes Zenobia has drowned herself. Hollingsworth hooks her body with a pole; Silas Foster observes that he left a physical wound near her heart.
Years later, Coverdale muses that he has become listless in life. He visits Hollingsworth, who is a broken man and has not accomplished anything in the way of his dreams of rehabilitation. Priscilla remains dutifully by his side, and Coverdale realizes the weight of Zenobia's death has ruined him. Coverdale himself reveals that he had fallen in love with Priscilla and feels similarly hopeless.
