The Miserable Mill begins with Violet, Klaus and Sunny Baudelaire traveling on a train heading for Paltryville, the location of the children's new home, the Lucky Smells Lumbermill.
Upon arrival, the children learn that they will have to work at the mill, but as part of the deal, their new guardian, Sir (they call him Sir because his name was so long that nobody pronounces it right), will try to keep Count Olaf, their nemesis, away. They meet Sir's more sympathetic partner, Charles, who shows them the library, which contains three books, one about the history of the lumbermill, one about the town constitution, and one donated by Dr. Orwell, the local optometrist, who lives in the eye shaped building, which is shaped, suspiciously, like the tattoo on their nemisis, Count Olaf's, ankle.
Klaus breaks his own glasses when he is purposely tripped by the new foreman, Flacutono, and is sent to see Dr. Orwell. When Klaus returns from the optometrist, hours later, he acts very strangely, as if in a trance. The next day in the lumbermill, Flacutono instructs Klaus to operate a stamping machine. Klaus causes an accident by dropping the machine on Phil, an optimistic coworker. Flacutono exclaims that the machine "cost an inordinate amount of money". The other workers ask what the unfamiliar word means and Klaus defines the word. Klaus explains that he doesn't remember what happened between when he broke his glasses and waking up in the mill. Foreman Flacutono trips him again, once again causing his glasses to break. This time though, Violet and Sunny accompany Klaus to Dr. Orwell's office.
Together, they arrive at the eye-shaped building (similar to the tattoo on Count Olaf's ankle) they saw on their arrival to Lucky Smells. Dr. Orwell, seemingly friendly, lets them in, and tells Violet and Sunny to sit in the waiting room. Violet and Sunny wonder about this before realizing that Count Olaf is disguised as Shirley, a receptionist. She also learns that Klaus has been (and is being) hypnotized by Orwell, who is in cahoots with Olaf. They leave with Klaus, who is once again in a trance, and calls Violet, Veronica. When they return to the lumbermill, they find a memo from Sir informing them that if there is another accident, he'll place them under Shirley's care.
Violet and Sunny put Klaus to bed, and Klaus calls Sunny, Susan, and then Violet and Sunny go to the mill's library. Violet reads the book donated by Orwell and learns that Orwell's technique uses a command word to control the subject and an "unhypnotize" word. They then hear the lumbermill starting early, and rush to see what is happening. They find Charles strapped to a log which Klaus is pushing through a buzz saw, and Foreman Flacutono giving orders. The girls move to stop them but see Klaus' bare feet, a clue that he has been hypnotized out of bed yet again. Violet, after reading a book by Dr. Orwell, learns the command word ("lucky"), and orders Klaus to release Charles but Flacutono orders him to continue. Shirley and Orwell arrive and the latter orders Klaus to ignore his sisters. Violet works out, and says, the word with which Flacutono unhypnotized Klaus ("inordinate") just in time. Violet is caught by Shirley and Flacutono, but Klaus manages to set Charles free. Sunny and Orwell have a fight, with Orwell's sword and Sunny's teeth; as Mr. Poe and Sir unexpectedly enter the room, Orwell steps back in surprise, into the path of the buzz saw, and dies.
Count Olaf is locked in the library but escapes out the window with Foreman Flacutono, who is revealed to be the bald man with the long nose in disguise. Sir relinquishes the Baudelaires from his care. The Baudelaires become orphans once more.