Matilda is the whimsical story of a brilliant young girl whose senseless and ridiculous parents do not notice or care that their daughter is a genius. Things do not get much better for Matilda once she goes to school because the school Headmistress is even more cruel and absurd than her parents. Fortunately, Matilda's teacher proves herself to be an ally and when Matilda hears the charming Miss Honey's terrible life story, she uses her unique abilities to help in a way that only Matilda can.

Matilda's parents are the exact opposite of normal parents. Instead of thinking too highly of their child, they find her to be dull and inconvenient. In reality, Matilda is anything but these things, teaching herself to read by the age of three and possessing a mind like a calculator. When she discovers the library down the road, a whole new world opens up to her and the librarian begins to supply her with classic adult literature. She plays pranks on her father to punish him whenever he has an outburst of temper directed at her.

When Matilda is five-and-a-half years old, she finally meets an adult who is interested in and impressed by her extraordinary abilities. This person is her teacher, Miss Honey, a young and kind woman who loves her job and her students. Miss Honey is unable to convince the Headmistress, Miss Trunchbull, that Matilda is anything other than a problem child.

It soon becomes clear that Miss Trunchbull is a terrible person. She regularly punishes students by throwing them out of windows or across the playground, yelling at them while picking them up by their hair or ears. The students play tricks on her, enacting revenge in any way they can.

One day when Miss Trunchbull is visiting Matilda's class, she accuses Matilda of putting a newt in her water. Matilda is innocent and becomes very angry. As she glares at the cup of water, she realizes that she is able to knock it over simply with the power of her mind and her eyes. She is shocked and elated by this discovery and decides that the only adult she can tell is her teacher. Miss Honey has her repeat the performance, and then invites Matilda to her cottage for tea.

On arriving at the tiny and sparsely furnished cottage, Matilda realizes that her teacher is very poor. Miss Honey shares the heart-breaking story of her life. She was orphaned at a young age and raised by a cruel and manipulative aunt who treated her like a slave and continued to take nearly all of her wages when she started working. It is only recently that Miss Honey has been able to escape this terrible aunt, who is none other than the Headmistress, Miss Trunchbull.

Matilda comes up with a plan to bring justice to Miss Trunchbull and to give Miss Honey back what belongs to her. She trains herself to lift objects with her mind and move them around in the air. She uses this skill in school to pick up a piece of chalk and write a note to Miss Trunchbull. The chalk appears to be moving all on its own and it tells Miss Trunchbull to give her niece back her house and her money. When she recovers from the shock, Miss Trunchbull leaves the school and is never seen again.

A few weeks later, Miss Honey is no longer poor and Matilda is no longer able to use her mind to move objects, probably because her great mind is finally being challenged. The novel ends with Matilda's father taking his family and fleeing the country and Matilda staying behind to live with her beloved teacher, Miss Honey.