The narrative starts from a short framing story about the night party. The active part is over and now the participants are telling scary stories to each other. But one of them named Douglas boasts that he is going to tell a real-life story, the most scary of all they heard - as soon as the manuscript it is written in will be delivered. It is the story of his sister’s governess, that he wrote from her words by himself. The rest of the party attendants are excited though some of them (including the narrator) are quite sceptical about the scariness of the story. Finally the manuscript arrives and Douglas starts reading it.
The main character of the manuscript is the unnamed woman who will be called the Governess further. The Governess is hired by some rich and handsome gentleman to look after his nephew and niece in the estate in the countryside. The proposition is perfectly reasonable and the man doesn’t look odd at all - but the one and only condition he says is essential looks very strange. The Governess, under any circumstances, should not write him, report anything or ask him any questions in any other way. Every issue the Governess may face she should discuss with the local housekeeper.
The condition is indeed unusual for the uncle, concerned with the fate of his relatives, but the woman doesn’t ask any extra questions and soon goes to the estate named Bly. The countryside looks peaceful and idyllic, the estate itself is full of light and very well-kept. The housekeeper of Bly is a woman named Mrs. Grose and she is the nicest and kindest person who greets the Governess very warmly. At first the Governess still feels a bit nervous, but then she meets Flora - the sweetest and beautiful girl, golden locks and all. Flora looks like a fairy-tale princes: kind, lovely and very friendly. She is very glad to meet her new governess and informs her that her brother Miles will return to Bly later, because now he studies in boarding school. Everything seems to be too good to be true.
The next day the Governess receives a letter from Miles’ school principal. The letter is full of anger and it states that Miles is expelled from the boarding school and won’t be allowed to ever return to it, because he did the things that are impossible to understand and forgive. The Governess is mildly shocked - she can’t imagine what a horrible deed shall the little boy do to be punished like this. Alarmed, she goes to Mrs. Grose and asks her about Miles. She is also very surprised, saying that indeed, Miles can be delinquent sometimes, but it’s what all the boys of his age do and there were no signs of him capable of doing anything so wrong. Still worrying, the Governess waits for Miles to return, preparing to see the worst.
But Miles, who arrives the ext day and is picked up from the station by the Governess, is as sweet and kind as his sister. He is also very handsome for a boy of his age, gentle and soft. The Governess is so touched by his genuine sorrow for being expelled for nothing that she decides not to ask him further, preventing retraumatizing the sensitive boy. For some weeks everything is just perfect again, until the Governess notices a strange male silhouette in the tower of the estate staring at her. But she is sure there is no one here except herself, Mrs. Grose and the kids. For the first time the Governess says nothing, afraid to look ridiculous, but then she sees the same face looking through the window of the dining room. The woman rushes outside to catch the intruder, but there is no trace of him outside. Now she herself stares at the dining room from the outside, scaring the poor Mrs. Grose.
The Governess tells her about a strange man and after the discussion the two women conclude that it should be Peter Quint, a servant of the kids’ uncle who lived here before. The hairstyle, facial features and clothes - everything matches his appearance. But there is one small trouble: Peter Quint has recently died. The Governess said that the man - whoever he was - was looking for someone and it was definitely not her. Mrs. Grose hesitates a lot before continuing her story, but finally she says that Quint was… let’s say, too attached to Miles. Everyone knew about his strange affection, but no one was brave enough to openly accuse him of perversion and harassing Miles - Quint was menacing enough and none of the personnel was allowed to complain to the estate owner.
The Governess doesn’t believe in ghosts still, but she understands the only thing she needs: someone is trying to harm the kids she is responsible for. She starts watching them closer and constantly, to the mild irritation of both Flora and Miles - but the Governess still doesn’t want to scare the kids by telling them the ghost stories or asking them about the harassment. One day, walking with Flora near the lake the Governess sees another silhouette, this time of young woman. The Governess asks the girl whether she sees something, but Flora, surprised, says that there is no one here except them. The Governess quickly returns home with the girl and immediately goes to Mrs. Grose to ask about another ghost. Mrs. Grose replies that Quint wasn’t the only person who died in the estate recently. The other person who passed away under strange circumstances was Miss Jessel, rumored to be the lover of Peter Quint. Miss Jessel was the previous governess of the kids. No one knows why she died. The terrified women promise to each other to save the kids - and themselves - from the influence of the evil spirits.
It becomes harder and harder to pretend that nothing happens in the house. At night the Governess, who is unable to sleep, walks out of her bedroom and sees Quint on the stairs, who looks precisely at her. But the woman refuses to back up or run screaming and Quint slowly disappears before her very eyes. The next night the ghost is there again - but this time it is Miss Jessel. It seems that if Quint came for Miles, and Miss Jessel came for Flora. Worried, the Governess rushes to Flora’s room, only to see her pillows on the floor. The girl is nowhere to be seen. In panic, the Governess starts to investigate the room and finds Flora behind the curtain. She is looking at the yard - there is Miles standing there. The boy, in his turn, is looking at the tower of the estate, seemingly waiting for someone to appear there. When asked what she was doing there, Flora can’t come with an answer quickly and blatantly lies something seemingly innocent. Later, the Governess asks Mrs. Grose more about Miss Jessel and learns that she also was “too free” with Flora, in the same manner that Quint was with Miles. Now the Governess is almost sure that the kids are tricking her and they do see the ghosts and know well about their existence.
Mrs. Grose is sure that it is time to write to their employer. But the Governess, remembering that she will be fired immediately for doing so, asks Mrs. Grose not to do this and even threatens her to leave if the housekeeper writes a letter. Mrs. Grose finally agrees to wait. The Governess starts to talk to the kids, mildly trying to ask them about their relationships with Quint and Jessel. It started with the Miles’ words that he wanted to show the Governess how bad he can be. Their relationship seems to progress, but it looks more and more uncomfortable for the Governess: like the boy tries to become intimate with her. Miles behaves excessively charmingly and innocently, often trying to touch her or hug. Once, when they all are going to the church Miles says that he will return to the school and he will make his uncle to come to Bly. He sounds like he has a plan already.
The Governess is finally scared enough to return home with Miles and immediately write a letter to her employer, saying that she is ready to be fired but she urges him to come to Bly and investigate what is happening with the kids. She goes to the stairs to write a letter, but immediately remembers that it is the usual place for the ghosts to appear, so the Governess hastens to the schoolroom… just to meet Miss Jessel sitting there. The Governess yells with anger at her deceased predecessor and Miss Jessel disappears letting the Governess to finally write a letter.
Soon Mrs. Grose and Flora return home. Mrs. Grose doesn’t ask the Governess about her absence in the church, but she listens to her decision and promises that she will call a postman tomorrow to deliver the Governess’ letter. Mrs. Grose appreciates that the Governess decided to do the right thing. The Governess tells nothing about the strange behaviour of Miles or about seeing Miss Jessel again. It won’t be her problem anymore from the moment the letter is sent.
The next morning Miles plays piano for his dearest Governess. Charmed by the play the woman doesn’t notice that Flora isn’t present in the room anymore. She rushes to search the girl, but she is nowhere to be found in the house. The Governess runs to the pond and indeed, Flora is there… along with Miss Jessel. The Governess points at the ghost, but no one seems to see it. Mrs. Grose believes her but just doesn’t see anyone. Flora suddenly starts yelling at the Governess,cursing her with foul words, so strange to hear from a sweet little girl, and screaming that she hates her, the Governess is cruel and Flora wants her to disappear somewhere. The Governess collapses to the ground, hysterical: she feels that she is going mad.
The next day Mrs. Grose comes to the Governess to say that after the incident Flora became very sick. She is getting worse, so Mrs. Grose has to depart with the girl to their employer to decide whether they need to send Flora to the hospital. The housekeeper quickly packs the baggage and they leave. Before her departure Mrs. Grose tells the Governess that the postman didn’t find the letter so he didn’t send it. It is strange, because the letter was left openly and there was no way to lose it.
The only person, except Mrs. Grose, who knows about the letter is Miles. When Flora and the housekeeper leave, the Governess comes to the boy’s bedroom. She interrogates him about the letter and Miles confesses that he stole the letter and burnt it, because he didn’t want her to go away. The Governess stays with him and the poor boy finally opens up, saying that she indeed did something horrible at school - or more rather told the other boys the horrible things. He doesn’t name that “horrible things” but it is strongly hinted that he tried to tell them about his perverted sexual relations with Quint and, possibly, the previous governess.
Suddenly the Governess notes Quint’s face outside the window. She embraces the boy and screams at the ghost that she will never let him have Miles. Miles doesn’t see the ghost, but he screams too, frightened. The ghost disappears and the boys calms down, laying in the Governess’ arms. She looks down at Miles happily, thinking that she was finally able to repel the ghost forever… but then the Governess understands that Miles’ scream wasn’t fear. It was agony and now she holds the dead boy’s body.