The book is set in Portland, Oregon, in the year 2002. Portland has three million inhabitants and continuous rain. It is deprived enough for the poorer inhabitants to have kwashiorkor, a protein deprivation from malnutrition. Although impoverished, the culture is similar to the 1970s in the United States. There is also a massive war in the Middle East. Climate change reduces quality of life.
George Orr, a draftsman and addict, abuses drugs to prevent "effective" dreams that change reality. After one of these dreams, the new reality is the only reality for everyone else, but Orr retains memory of the previous reality. Under threat of incarceration, Orr undergoes treatment for his addiction, attending therapy sessions with ambitious psychiatrist and sleep researcher William Haber. Haber, gradually believing Orr's claims that his "effective" dreams can affect the waking world, seeks to use Orr's power to change the planet. His experiments with a biofeedback/EEG machine, nicknamed the Augmentor, enhance Orr's abilities while producing a series of increasingly intolerable alternative worlds based on an assortment of utopian (and dystopian) premises:
- Eliminating over-population is disastrous after Orr dreams that a devastating plague eliminated most humans.
- Attempting to remove the scourge of cancer from society creates a world where citizens are routinely allowed to euthanize one another for being considered a threat to the gene pool.
- "Peace on Earth" results in an alien invasion of the Moon, uniting mankind against the external threat while creating new conflict in "cislunar space".
- Eliminating racism causes all humans to have gray skin, and changes much of history: "...he had searched his memory and had found in it no address that had been delivered on a battlefield in Gettysburg, nor any man known to history named Martin Luther King" (LeGuin, 130).[6]
Each effective dream gives Haber more wealth and status until he is effectively ruler of the planet. Orr's finances also improve, but he is unhappy with Haber's meddling and just wants to let things be. Increasingly frightened by Haber's lust for power and delusions of divinity, Orr contacts lawyer Heather Lelache to represent him against Haber. He falls in love with Heather but is unsuccessful in getting released from therapy. Despite this failure, Lelache is able to be present at one of the sessions, which allows her to remember two realities: one where her husband died early in the Middle East War and another where he died just before the truce because of the aliens. She seeks out Orr after he attempts to escape Haber by fleeing to the countryside, where he reveals to her that the world was destroyed by a nuclear war in April 1998. Orr dreamed it back into existence as he lay dying in the ruins, and doubts the reality of what now exists, considering it nothing more than a mere dream.
Portland and Mount Hood play a central role in the setting of the novelAfraid of the potential harm Haber could do to reality and frustrated by his refusal to admit to Orr that he knows the power of his effective dreams, Orr believes that his only option may be to commit suicide. Lelache suggests that she assist him in dreaming an effective dream to make Haber more benevolent instead, to which he eventually agrees. She tries to help Orr but also tries to improve the planet; when she suggests to a dreaming Orr that the aliens should no longer be on the Moon, they invade the Earth instead. In the resultant fighting, Mount Hood is bombed and the 'dormant' volcano produces a spectacular eruption.
During that disaster, Orr returns to Haber, who has Orr dream of peaceful aliens. For a time, everybody experiences stability, but Haber continues meddling. His suggestion Orr dream away racism results in everyone becoming gray; Lelache's parents are different races, so she never existed in that alternative reality. Orr dreams a gray version of her with a milder personality, the two marry. Mount Hood continues to erupt, and he is concerned the planet is losing coherence.
After speaking with one of the aliens, who seem to have a cryptic understanding of the effective dreams, Orr suddenly understands his situation and confronts Haber. In their final session, Haber "cures" Orr of his ability to dream effectively by suggesting Orr dream that his dreams no longer affect reality. Haber has become frustrated with Orr's resistance and used his research from studying Orr's brain during his sessions to give himself the same power. Haber's first effective dream represents a significant break with the various realities created by Orr, and threatens to destroy reality. Despite Orr's efforts to prevent it, the gray Lelache is annihilated by the encroaching chaos. Orr successfully shuts off the Augmentor as coherent existence threatens to dissolve into undifferentiated chaos. The world is saved, but exists now as a mix of random elements from several realities.
In the new reality, Orr works at a kitchen store operated by one of the aliens. Haber survives, his mind shattered by his knowledge of unreality, and only exists because Orr's dreams restored him. Lelache is also restored, though she is left with only a slight memory of Orr. Orr is resigned to the loss of the Lelache he loved, but resolves to romance the one that exists now. The story ends as the two have coffee, while his inscrutable alien employer observes.
