Skeleton Man is a tale about the search for a case of diamonds lost in a historic collision between two airliners over the Grand Canyon in 1956. The air crash was real, and in fact triggered the formation of the Federal Aviation Administration, but the diamonds and the characters that encounter them are fiction. Joanna Craig is the illegitimate daughter of John Clarke, the man who carried the diamonds cuffed to his wrist. His arm is also missing, which is the object of Joanna's real quest. DNA from the arm will prove that she is the daughter of John Clarke and allow her to reclaim her father's fortune, which was swindled away from his estate by an attorney named Dan Plymale. Joanna is wealthy in her own right, having inherited her elderly stepfather's fortune when her mother died. She is motivated more by revenge against Plymale than greed for the diamonds.

The Grand Canyon is administered by the National Parks Service and under the jurisdiction of Sergeant Jim Chee of the Navajo Tribal Police. Chee gets involved in the search for the diamonds at the request of Cowboy Dashee. Dashee's nephew, Billy Tuve, was charged with the robbery and murder of a jewelry storeowner when he tried to hock a $10,000 diamond, which he thought was zirconium, for $20. Dashee is a Hopi, but Jim Chee is his good Navajo friend. His nephew Billy claims he traded a folding entrenching tool to an old Hopi shaman, who lives at the bottom of the canyon, for a fake diamond. The hunt for the diamonds, and John Clarke's arm, culminates at the bottom of the Grand Canyon, just as a major thunderstorm lets loose. Jim Chee is there with his fiancé Bernie, Joanna Craig and Chandler, a thug hired by Plymale to prevent Joanna from finding her father's arm. Cowboy Dashee enters the canyon with Chee and Bernie, but he is felled by a broken ankle and has to be taken out by a rescue helicopter.

The search climaxes in a narrow side gorge that feeds the big canyon. The entrance to an even narrower slot canyon, the domicile of the old shaman, is in the side gorge. Joanna and Chandler team in an unlikely alliance with Chandler suspecting that he intends to kill her. An old Hopi woman shows Bernie the way into the hidden slot canyon, where she discovers the mummified remains of the shaman and a shrine he has built to Matwa, a Kachina spirit that showed the Hopis they need not fear death. The shrine consists of the diamonds, contained in shiny snuff tins and the skeletal remains of John Clarke's arm.

The slot canyon floods as the storm builds. Joanna and Bernie escape the deluge by climbing on to the ledge the old shaman used for a sleeping place. Chandler, however, cannot tear himself from his task of harvesting the diamonds and is swept away. Sergeant Chee tries to save Chandler as he is washed out of the narrow slot canyon, but he won't let go of his diamonds and perishes. Everyone else survives, and as the flood subsides, they return to the surface. Joanna has clung to the arm bones and can now destroy Plymale and claim her fortune.