The two youngest Pevensie children, Lucy and Edmund, are staying with their odious cousin Eustace Scrubb while their older brother, Peter, is studying for an exam with Professor Kirke, and their older sister, Susan, is travelling through America with their parents. Edmund, Lucy, and Eustace are drawn into the Narnian world through a picture of a ship at sea. (The painting, hanging neglected in the guest bedroom in which Lucy was staying, had been an unwanted present to Eustace's parents.) The three children land in the ocean near the pictured vessel, the titular Dawn Treader, and are taken aboard.
The Dawn Treader is the ship of Caspian X, King of Narnia, whom Edmund and Lucy (along with Peter and Susan) helped to regain the throne of Narnia in Prince Caspian. Also present on board are the Lord Drinian (the captain of the Dawn Treader) and first mate Rhince.
Peace has been established in the three years since then, and Caspian has undertaken a quest in fulfilment of his coronation oath to sail east for a year and a day to find the seven lost Lords of Narnia: Argoz, Bern, Mavramorn, Octesian, Restimar, Revilian, and Rhoop. He mentions that Trumpkin the dwarf has been left in charge of Narnia as Lord Regent in his absence. Lucy and Edmund are delighted to be back in the Narnian world, but Eustace is less enthusiastic, as he has never been there before and had taunted his cousins with his belief that this alternate universe had never existed. The Talking Mouse Reepicheep is also on board, as he hopes to find Aslan's Country beyond the seas of the "utter East". When Eustace teases Reepicheep, much is revealed about the mouse's pugnacious character.
They first make landfall in the Lone Islands, nominally Narnian territory but fallen away from Narnian ways: in particular the slave trade flourishes here, despite Narnian law stating that it is forbidden. Caspian, Lucy, Edmund, Eustace, and Reepicheep are captured as merchandise by a slave trader, and a man "buys" Caspian before they even reach the slave market. He turns out to be the first lost lord, Bern, who had moved to the islands and married a woman there after being banished from Narnia by Miraz. When Caspian reveals his identity, Lord Bern acknowledges him as King. Caspian reclaims the islands for Narnia and replaces Gumpas, the greedy governor, with Lord Bern, whom he names Duke of the Lone Islands. Caspian also declares that slavery is forbidden in all his dominions and that all slaves are free.
At the second island they visit, Eustace leaves the group to avoid participating in the work needed to render the ship seaworthy after a storm has damaged it and hides in a dead dragon's cave to escape a sudden downpour. The dragon's treasure arouses his greed: he fills his pockets with gold and jewels and puts on a large golden bracelet; but as he sleeps, he is transformed into a dragon. In his new guise, he becomes aware of how bad his previous behaviour was; he attempts to shed his dragon skin without success. It is only with the help of Aslan that he is able to become human again, though the process is very painful. Caspian recognises the bracelet: it belonged to Lord Octesian, another of the lost lords. They speculate that the dragon killed Octesian — or even that the dragon was Octesian. Aslan turns Eustace back into a boy, and as a result of his experiences, he is now a much nicer person.
The crew narrowly escape being sunk by a sea-serpent and stop at Deathwater Island, so named for a pool of water which turns everything immersed in it into gold, including one of the missing lords who turns out to have been Lord Restimar. Then they land on the Duffers' Island, where Lucy removes an invisibility spell from the Duffers (later Dufflepuds) at their request and befriends the Magician who cast it. Next they reach the "Island Where Dreams Come True", called the Dark Island since it is permanently hidden in darkness. It turns out that the "dreams" that come true there are not necessarily nice dreams and Lord Rhoop, whom they rescue there, has been tormented for years by his nightmares. Eventually they reach the Island of the Star, where they find the three remaining lost lords in enchanted sleep. Ramandu, the fallen star who lives on the island with his daughter, tells them that the only way to awaken them is to sail to the edge of the world and to leave one member of the crew behind there. Lord Rhoop wishes to "sleep without dreams" beside his friends until they wake and everyone agrees before they set out again.
The Dawn Treader continues sailing into an area where merpeople dwell and the water turns sweet rather than salty, as Reepicheep discovers when he belligerently jumps in to fight a mer-man whom he thinks challenged him. At last the water becomes so shallow that the ship can go no farther. Caspian orders a boat lowered and announces that he will go to the world's end with Reepicheep. The crew object, saying that as King of Narnia he has no right to abandon them. Caspian goes to his cabin in a temper, but returns to say that Aslan appeared in his cabin and told him that only Lucy, Edmund, Eustace, and Reepicheep will go on.
These four venture in a small boat through a sea of lilies until they reach a wall of water that extends into the sky. Fulfilling Ramandu's condition, Reepicheep paddles his coracle up the waterfall and is never again seen in Narnia. Edmund, Eustace, and Lucy find a Lamb, who transforms into Aslan and tells them that Edmund and Lucy will not return to Narnia. When Lucy becomes sorrowful and despondent about the prospect of not seeing Aslan again, Aslan tells the children that he exists in their world, too. Aslan adds, "There I have another name. You must learn to know me by that name. This was the very reason why you were brought to Narnia, that by knowing me here for a little, you may know me better there". Aslan then sends the three children home.
Back in the real world, everyone remarks about how much Eustace has changed.
