This book takes place in a universe where "daemons" are real; they are entities that are bound to specific people and represent parts of their personality. The main character, Lyra, and her daemon, Pantalaimon (Pan) save the life of her uncle, Lord Asriel. Later, they hear talk of a mysterious "Dust," which Asriel is being paid to look for.
As time goes, by, the story establishes a friendship between Lyra and Roger. Even their daemons are friends. Roger is eventually abducted by evil "Gobblers," who are referenced several times in the story and are apparently synonymous with the boogeyman.
Then, the seemingly nice Mrs. Coulter, who comes to "save" Lyra from the house that she lived in sort of adopts her. However, before she leaves she is gifted with the titular golden compass, but she has no idea how to wield it. It does not take long for Lyra to realize that Mrs. Coulter is evil, and her monkey daemon's attacks on Pan cement this. Lyra runs away, inspired by Lord Asriel, to seek out the aforementioned "Dust". Unfortunately, she doesn't realize that she's running away from her mother.
Soon enough, while trying to reach Lord Asriel, she meets a group of people called the Gyptians who also had a child taken by the Gobblers (because they apparently only take children). She eventually meets this guy named John Faa. He tells her that Ma Costa (one of the Gyptians) was actually her protector as a child. She then learns how to read her golden compass (referred to as an Alethiometer) and has a run in with some benign witches.
The Gyptians endorse Lyra's plan to travel with them to rescue the other kidnapped kids. She then acquires two partners- a disgraced armored bear (who can also talk) and a man named Lee Scoresby who has a hot air balloon. Then, a group of Gobblers called the Tartars steal Lyra. But by doing so, she finds out why Gobblers steal children-they surgically separate children from their daemons. She then finds out that her mother is the one directing these activities. In rebellion, she rescues some of the children, with help from the witches.
Then she makes her way to find her father, but first crosses paths with the armored bears that Iorek was exiled from. Irorek, in an epic battle with the leader of the bears, wins and then goes to save Lord Asriel. He then accidentally kills Roger and creates an alternate dimension in which he and Lyra enter into.