Mrs Coulter has drugged her daughter Lyra and keeps her in a remote cave hidden from the Magisterium, a theocratic authority who are determined to kill Lyra to prevent her from becoming the second Eve and causing a new fall of man. Lyra dreams she meets her dead friend Roger in the land of the dead, and promises to help him.
In Cittàgazze, a city in a parallel world, angels Balthamos and Baruch are instructed to take Lyra's friend Will to Lord Asriel, whose army are preparing to fight the Magisterium, but Will refuses until Lyra is rescued. When they are attacked by a soldier of the archangel Metatron, Will uses the subtle knife, which has a blade so sharp it can cut windows into other worlds, to escape. Baruch delivers a message to Asriel but dies shortly after from wounds sustained fighting angels loyal to Metatron.
The Magisterium sends an assassin, Father Gomez, to follow the physicist Mary Malone, hoping that Mary will lead him to Lyra. Mary goes through another window into a world where she meets sapient, elephantine creatures called mulefa who use large seedpods attached to their feet as wheels. She learns that the seedpod trees have been dying out for centuries. Mary uses the tree sap lacquer to construct a spyglass that allows her to see the particles known as dust, which is no longer nourishing the trees that the mulefa depend on.
Will meets Iorek Byrnison, king of the armoured bears, who are migrating south to avoid the Arctic melt caused by Lord Asriel's experiments. Will impresses Iorek, by destroying his helmet with the subtle knife and Iorek agrees to help rescue Lyra.
Will, Iorek, Balthamos, Asriel's army and Magisterium forces converge on Mrs. Coulter's cave, where Will wakes Lyra. As he cuts a window into another world, Coulter's sudden arrival reminds him of his sick mother, which breaks his concentration, and he shatters the knife. He and two Gallivespian spies, Tialys and Salmakia, escape with Lyra to another world. Iorek repairs the knife.
Lyra, Will, Tialys and Salmakia travel to the world of the dead to fulfil Lyra's promise to Roger. They are forced to leave their dæmons behind, causing them enormous pain. After they find Roger, they strike a deal with the harpies: in exchange for allowing them to open a window so the dead escape, the harpies will hear the stories of the dead, and may bar access to those who have not lived full lives. The dead step through and dissolve, reuinited with the universe.
Will and Lyra must return to Asriel's realm to retrieve their dæmons; Will's dæmon, previously invisible, is now visible. They are joined by the ghosts of Will's father and Lee Scoresby, who decide to remain intact to join Asriel's army and fight the spectres, wraith-like creatures that devour adult souls. The battle between Asriel's army and the forces of the Authority begins.
Mrs. Coulter, who has now allied herself with Asriel, enters the Authority's citadel, where she meets the Regent Metatron. She leads Metatron to Asriel, but betrays him, uniting with Asriel to attack Metatron. All three fall into an abyss and cease to exist. The Authority dies when Will and Lyra free him from the crystal prison in which Metatron had trapped him; he is so feeble that exposure to the atmosphere dissolves him.
With the help of the Gallivespians, armoured bears, and ghosts, Lyra and Will find their dæmons and escape the battle to the mulefa world, where the short-lived Gallivespians die. They encounter Mary, who tells them why she had stopped being a nun. Will and Lyra picnic in the wood and kiss. The flow of dust escaping is slowed and envelops Will and Lyra. Father Gomez, who was preparing to kill Lyra is stopped by Balthomos who then allows himself to disperse into the air. The witch Serafina Pekkala and angel Xaphania explain that openings between worlds allow dust to escape into oblivion, each creating a new spectre; no more can be permitted and all the existing windows must be closed, except the one leading from the world of the dead.
Lyra and Will must return to their own worlds, as they are unable to survive in worlds other than their own. Lyra leads Will to the Botanic Gardens in his Oxford. They promise to go to a bench in their respective Oxfords every midsummer's day to think of each other.
Will and Mary return to their worlds. Will breaks the subtle knife by trying to open a window while thinking about Lyra. Mary learns how to see her own dæmon, a black Alpine chough. Will's dæmon, named Kirjava by Serafina, has taken the permanent form of a large black cat. Lyra returns to Jordan College in her world. Having lost her ability to read the alethiometer intuitively, she decides to study alethiometry. She and her dæmon Pantalaimon, whohas taken the permanent form of a pine marten, resolve to build the Republic of Heaven.