The Night Circus is a story of an ancient dual between two schools of magical knowledge: old and new. During the course of the deadly game, two young illusionists fall in love, forever changing their lives and the lives of the performers in a mysterious traveling night circus.

In 1873, five-year-old Celia Bowen is deposited at the office of her magician father, Prospero the Entertainer, after her mother's unfortunate suicide. Although Prospero does not have any desire to parent a child, he is intrigued when it becomes clear that his daughter exhibits magical ability. Immediately, Prospero contacts his previous teacher, Mr. AH, and demands a dual: old magic versus new in a battle to the death. Accepting Prospero's wager, Mr. AH sets out to find his own pupil, an orphan named Marco Alisdiar, whom he plucks from an orphanage and schools in the ways of old magic. When Marco is eighteen years old, he is sent to work as the assistant to Chandresh Christophe Lefevre, an eccentric yet brilliant man who creates the idea of traveling night circus. He hires Celia Bowen to work as an illusionist in the show, inadvertently creating a venue for the greatest battle magic has ever seen. Although they are unaware that the other is their opponent, every move that Marco and Celia make surrounding the circus is considered a "move" in their never-ending game of magical chess, in which one illusionist will emerge victorious and the other will have fought to the death.

Marco is the first to discover that Celia is his opponent, and when he is forced to leave the circus to work with Chandresh, Marco sends his girlfriend Isobel to work as a spy, sending him information about Celia's movement. What Marco doesn't know is that as soon as she arrives at the circus, Isobel performs a tempering spell, creating a sense of balance and harmony in the battle between Marco and Isobel. The two illusionists work tirelessly, always trying to out-imagine their opponent as they create mystifying and outrageous circus tents to impress the guests such as moving carousels with living animals, gardens constructed entirely out of ice, and winding labyrinths of clouds. As the competition intensifies, Marco and Celia realize that they are connected not only through their fierce competition, but also through their emotions. Although they try desperately to avoid it, both young illusionists realize that they are falling in love.

Unaware of the magical hold they have over the lives of the circus performers, who are truly just pawns in the venue of the competition, Marco and Isobel tread dangerously toward destruction as they allow their feelings for each other to cloud the competition. Celia, who literally holds the circus together with her thoughts, begins to waver in her control, and as a result, Tara Burgess, one of the circus' founding members, dies. On Halloween Night, 1902, Isobel discovers that Marco is in love with Celia, and in an act of revenge, destroys the tempering spell, tearing apart the delicate balance that had held the circus together for so many years. In this moment, a dangerous schism is created, allowing danger to enter the circus for the first time. Chandresh, drunk and confused, arrives at the circus on the same evening and kills Herr Friedrick Thiessen. This act of violence would never have been possible while the tempering act was still in place.

Celia, sensing that something has gone terribly wrong, scrambles to hold the circus together, to restore the balance that had once kept the circus safe. Overwhelmed with responsibility, and exhausted by the competition itself, Celia threatens to quit the competition all together, to throw herself in the fire so that Marco can live. At the last moment, however, Celia discovers a way to dissipate her atoms and pull them back together using the circus bonfire as a touchstone. She will be forced to haunt the physical world rather that live within it, but for her, the reward is far greater than the loss. Grabbing Marco and jumping with him into the fire, Celia ultimately finds a way to avoid the terrible fate of the competition. In a way, she and Marco simultaneously withdraw from competition and enter a dream world together. Although they can never interact with the physical world again, they are together, and will enjoy the circus together for as long as their souls wander the earth for their own magical "happily ever after."