Lyra, a young girl who lives within Jordan, a fictitious Oxford college otherwise full of adult, male scholars, is challenged when she is thrust into a mysterious quest for a substance called "dust." She first learns of it when she and her daemon, an external embodiment of a person's soul, are eavesdropping on a meeting between the scholars and a famous explorer. Lord Asriel, whom she knows because he has visited the college before and has taken a casual interest in her development, must be rescued from the Master of the college. Lyra sees the Master trying to poison Lord Asriel, warns him, and is then taken into his confidence.

However, his comments pique her curiosity about many things such as the church and her own history, which she has heretofore taken for granted. When other children start to disappear into the clutches of the mysterious Oblation Board, she becomes even more curious. One of kidnapped children is her friend Roger, and this spurs her to action. Then she finds out Lord Asriel is her father and is being held prisoner in the North. She embarks on their rescue, traveling with a group of river-gypsies known as "gyptians" who are looking for their lost children. She befriends a bear, witches and other unlikely characters, rescues many of the stolen children, but is unsuccessful in rescuing her friend before he is killed. The story ends when she sees Lord Asriel go off into a parallel world through a hole he has created by "severing" her young friend.

She runs after him but that is where this installment of the story ends, to be taken up again in The Subtle Knife and concluded in The Amber Spyglass.