Corelli's Mandolin is the story of a group of people whose lives become intertwined on the Greek island of Cephallonia during the Italian and German occupation of World War II. Dr. Iannis lives on the island with his beautiful daughter, Pelagia, who is engaged to a local fisherman named Mandras. When Italy invades Greece, Mandras leaves the island to join the resistance fighters and an Italian unit occupies the island under the command of Captain Antonio Corelli, who is housed with the doctor. The light-hearted Corelli is a musician by training and brings with him his mandolin, with which he entertains the doctor and his daughter. Soon Pelagia and Corelli have fallen in love.

The story turns tragic when the Allied forces invade Italy and the Italian troops in Greece are cut off. Their former German allies are now their enemies and the Italian soldiers are rounded up and executed. Corelli himself survives a firing squad because of the heroic action of a fellow soldier named Carlo Guercio, a secretly homosexual soldier who is in love with him. Corelli is found alive and taken to the doctor, who treats him, hides him from the Germans, and helps him to escape the island. Before leaving he promises Pelagia he will return after the war so they can be married.

When the German troops are ordered to withdraw from Greece, the former Greek resistance fighters led by the communists take control of Cephallonia. The doctor is arrested and sent away by the communists. Mandras returns, now an important figure among the Greek communists. He is angry at Pelagia, who shoots him while he is assaulting her.

Pelagia and Mandras' mother live together and raise an orphan girl, who they name Antonia. The doctor returns from his imprisonment when the communists lose control, but is killed when a devastating earthquake hits the island. Pelagia raises Antonia with Drousula's help until Antonia marries a successful lawyer named Alexi. She has a son, named Iannis, who takes an interest in playing the mandolin.

Pelagia grows old on the island, never hearing from Corelli and believing him to be dead. One day Corelli returns. He has in fact been traveling the world as a musician, finally settling in Greece. He had attempted to return to Pelagia years before, but had seen her holding the young Antonia and believed her to be married. Pelagia is angry at first that he never made contact, but soon forgives him. The novel ends as the two ride off on a motorcycle as they had done many times in their younger days.