Anne Shirley has put off earning her bachelor's degree in order to stay home and help her guardian, Marilla Cuthbert, run their household at Green Gables in the wake of the death of Marilla's brother Matthew. As Anne Shirley prepares to take on the challenges of teaching elementary school, she worries about achieving her ideals of drawing out the best in each of her students. She vows never to whip them despite the opinions of her friends and colleagues. Despite a bumpy start, Anne learns to enjoy the routine of teaching, though one contemptuous student, Anthony Pye, remains a thorn in her side. She takes solace in a new student named Paul Irving, who is a kindred spirit, appreciating life's fanciful imaginings, as Anne does.

At home, Marilla adopts six-year-old twins, Davy and Dora Keith, the children of her third cousin, who had no one else to care for them. Dora is a well-behaved angel, but Davy tests Marilla's patience, frequently getting into trouble , asking sacrilegious questions about God, and taking glee in his naughty behavior. Despite his faults, Davy's charm and exuberance leads both Anne and Marilla to secretly favor him over Dora.

At school, Anne is forced to submit her ideals to reality when Anthony Pye puts a toad in her drawer and she snaps, whipping him. Although Anne is mortified with herself and her failure, Anthony learns to respect her as an authority, proving to Anne that in this instance, she did the right thing despite herself. Meanwhile, Anne and her friends Diana Barry and Gilbert Blythe head up an organization called the Avonlea Village Improvement Society (A.V.I.S.) to enhance and beautify their community. Despite initial reluctance from residents, the town rallies behind them and the society plants flowers and trees, re-shingles the town hall, and keeps advertising off the fences of the roads leading into town. Anne has many adventures pursuing the goals of the A.V.I.S.

Throughout the novel, Anne is described as adventurous and accident prone. She befriends quirky people, discovers natural wonders, and occasionally gets stuck in the roof of the duck shed. Through it all she maintains an impenetrable optimism that no matter how bad things seem, tomorrow is a new day, unmarked as a clean slate. She has high ideals about more than just teaching methods, but life constantly forces her to adjust those ideals in the face of a an imperfect reality. In one successful adventure, Anne meets a new friend, Miss Lavendar Lewis in a secluded cottage near Avonlea. As she did with Paul Irving, Anne immediately recognizes Miss Lavendar as a kindred spirit, full of whimsy and poetry. Anne is taken with the long-ago failed romance of Miss Lavendar and Stephen Irving, Paul's father. By bringing Miss Lavendar and Paul together, Anne believes she acts as an instrument of fate, ultimately leading to the reunion of Lavendar and Stephen.

When the husband of Marilla's good friend Rachel Lynde dies, Marilla invites her to live at Green Gables in order to give Anne the opportunity to go to college. Despite her contentment with teaching, Anne is ready to pursue her greater ambitions. She realizes adulthood is encroaching when Diana accepts the proposal of a young man named Fred Wright, who is not the romantic ideal they once dreamed of together. Despite the seeming romance of the wedding of Miss Lavendar and Stephen Irving, Anne recognizes adult life might be less glamorous than she hopes, and such romance can come at a high price. When she intuits that her childhood friend Gilbert has strong feelings for her, Anne momentarily sees a possibility outside the idealized fantasies she cherishes. She knows it is time to take a firm step into adulthood.