Tehanu begins slightly before the conclusion of the previous book in the series, The Farthest Shore , and provides some information about the life of Tenar after the end of The Tombs of Atuan . She had rejected the option of life in Havnor, and instead arrived on Gont. For some time she lived with Ged's old master Ogion– but though fond of him, rejected Ogion’s offer to teach her magic. Instead, she married a farmer called Flint with whom she had two children, called Apple and Spark, and became known to the locals as Goha. It is mentioned that Ged was a bit disappointed in – and did not understand – Tenar's choice of a life.
At the book's outset her husband is now dead and her children grown up. Tenar lives on her own at Flint's property– Oak Farm – and is lonely and uncertain of her identity. She is brought a severely injured child; born of wandering vagabonds, the child’s natural father had pushed her into a campfire and left her for dead. Tenar helps to save the child's life, but the child is left with one side of her facepermanently scarred and the fingers of one hand fused into a claw. Tenar adopts her and gives the child the use name Therru, which means "flame" in Tenar's native Kargish language.
Tenar learns that the mage Ogion, is on his deathbed and has asked to see her. She sets out to visit him at his house outside the town of Re Albi, taking Therru with her. On the way, she encounters a group of ruffians, one of whom is Handy, who was involved in the original attempt on Therru's life, and claims to be her uncle. She stays with Ogion, tending to him in his last days. He instructs her to teach Therru, but his instructions are vague, and hint at her being more than she seems. After his death, she stays on at his cottage, assisted by a local witch called Moss and a simple village girl called Heather. A few days after Ogion's death, Ged (also called Sparrowhawk) arrives on the back of the dragon Kalessin, unconscious and near death. Ged– once the Archmage of Roke - has spent all his wizard's powers in sealing the gap between the worlds of the living and the dead created by the evil wizard Cob. She nurses him back to health, but when the new king Lebannen sends envoys to bring him back to Roke to resume his duties as Archmage, Ged cannot face them. He accepts Tenar's offer to return to Oak Farm to manage things there in her absence and once more takes up life as a goatherd. While at Re Albi, Tenar is confronted by the local lord's wicked mage, Aspen, who attempts to put a curse on her, but is initially thwarted.
Tenar informs the king’s men that she cannot reveal Ged’s whereabouts, and they accept the situation and depart. Tenar is initially unsure whether to stay or leave Re Albi, but her when she is threatened by both Aspen and Handy, she flees with Therru. Her mind confused by Aspen's magic, she is almost overtaken by Handy, but manages to escape to Gont Port, taking refuge in the ship of the king himself. Lebannen takes Tenar and Therru to Valmouth, where Tenar eventually returns to Oak Farm to find that Ged is away tending goats in the mountains for the season. Tenar settles back into life on the farm, until one night when Handy and a group of men attempt to break into the house. They are driven off by Ged, who followed them on their way toward the farm and kills one of them with a pitchfork. Tenar and Ged begin a relationship, acknowledging that they had always loved each other. Ged wants nothing more thanto settle down and live an ordinary life, far from the concerns of an Archmage. Together, they teach and care for Therru and manage the farm. The order is upset however when Tenar's son Spark returns home suddenly from a life as a sailor and tells her he wishes to run the farm. Under Gontish law OakFarm belongs to him and Tenar has no claim to it.
Tenar receives word that Moss is dying and wants to see her. She, Ged and Therru leave immediately for Re Albi. However, the message was a trap set by Aspen, who reveals himself to be a follower of the defeated wizard Cob. Tenar and Ged are led to the lord's mansion controlled by Aspen's magic. Therru runs to the cliff behind Ogion's cottage, where she calls to the dragon Kalessin for help, and reveals her true nature: she is in fact "a double being, half human, half-dragon". Aspen and his followers bring both Tenar and Ged up to the clifftop. Under the influence of Aspen's spell, they are both just about to jump to their deaths when the dragon Kalessin arrives burns Aspen and his men. Kalessin addresses Therru by her true name Tehanu, calling her his daughter, and asks her if she would like to leave with him, but she decides for now that she will stay with Tenar and Ged. The novel ends with all three of them settling down to a simple life of farming and goat keeping at Ogion's old cottage.