The Sword of Shannara 's events take place 2000 years after a Great War: nuclear holocaust has wiped out most of the planet. During this time, Mankind mutates into several distinct races: Men, Dwarves, Gnomes and Trolls, all named after creatures from "age-old" myths. Also, the Elves begin to emerge after having been in seclusion and hiding for centuries. The warring that caused the holocaust is referred to as the "Great Wars" throughout the novel. These wars rearranged the planet's geographical attributes and wiped out most human life on Earth. Only traces of technological artifacts have been found; most advanced technology has been lost, but magic has been rediscovered.
A thousand years before The Sword of Shannara , an Elf named Galaphile gathers all of the people who still had some knowledge of the old world to Paranor to try to bring peace and order to all of the races. They name themselves the First Druid Council. Brona, a rogue Druid, and his followers leave, taking the Ildatch with them; this magical tome controls their minds. 250 years later, Brona begins the First War of the Races when he convinces all Men to attack the other races. He almost succeeds in seizing rule of the Four Lands, but the tide turns, and the war ends with his defeat and disappearance. The Druids divide the Four Lands among the races and become reclusive, withdrawing to Paranor because of their shame at the betrayal by one of their own members.
Two and a half centuries after the First War of the Races, Brona returns as the Warlock Lord, now with Skull Bearers as his servants. Chronicled in the prequel novel First King of Shannara , the Second War of the Races begins with the destruction of the Druid Order. A lone Druid, Bremen, forges a magical talisman to destroy the Warlock Lord; it is given to the Elven King, Jerle Shannara. As it takes the form of a blade, the talisman is named the Sword of Shannara. It succeeds in banishing the Warlock Lord. He is not killed, but his army is defeated by the combined armies of the Elves and Dwarves. Peace comes at a high price, interracial tension is renewed and the Druids have vanished.
Five centuries later, the Ohmsford family of Shady Vale in the Southland takes in the half-Elven child Shea. He takes the name Ohmsford and is raised as a brother to the family's son Flick. Becoming inseparable, the brothers run the family inn.
Some time later, the last Druid Allanon arrives in Shady Vale. Allanon warns the Ohmsford brothers that the Warlock Lord has returned to the Skull Kingdom in the Northland and is coming for Shea. As the last descendant of Jerle Shannara, Shea is the only one capable of wielding the Sword of Shannara against the Warlock Lord.
Allanon departs, leaving Shea three Blue Elfstones for protection. He tells Shea to flee at the sign of the Skull. A few weeks later, a creature bearing a symbol of a skull shows up: a Skull Bearer, one of the Warlock Lord's "winged black destroyers", has arrived to search for Shea. The brothers are forced to flee with the Skull Bearer on their heels. They take refuge in the nearby city of [[Leah]] where they find Shea's friend Menion, the son of the city's lord. Menion decides to accompany the two, and he travels with them to [[Culhaven]], to meet with Allanon. While at Culhaven, they are joined by a prince of Callahorn, Balinor Buckhannah, two elven brothers, Durin and Dayel Elessedil, and the dwarf Hendel.
The party sets out for Paranor. But along the way, Shea falls over a waterfall and becomes separated from the group. Allanon spurs the group to continue to Paranor. Once there, the party gets into a battle with minions of the Warlock Lord and find that the Sword of Shannara has already been removed. The party then learns of the Warlock Lord's invasion of the Southland, and decide to split up to do what they can to stop it.
Disguised by Allanon, Flick infiltrates the enemy camp and rescues the captive Elven King, Eventine Elessedil; at the same time, in Kern, Menion saves a woman named Shirl Ravenlock and falls in love with her. They organize an evacuation of Kern before the Northland army reaches the city.
Balinor returns to Tyrsis to activate the Border Legion only to find that it has been disbanded. Balinor is then imprisoned by his insane brother Palance Buckhannah, who has taken control of Callahorn's rule. His advisor, Stenmin, has driven Palance insane with drugs, making him his pawn. With help from Menion, Balinor escapes and confronts both Palance and Stenmin. Practically cornered, Stenmin stabs Palance as a distraction and flees.
Now commanded by Balinor, Callahorn's reformed Border Legion marches out of Tyrsis and engages the Northland army at the Mermiddon River, killing many Northlanders before being forced to pull back; the Border Legion retreats to Tyrsis and make preparations for defense. During the siege of Tyrsis, Hendel and Menion come upon Stenmin and some of his supporters. Hendel is killed, but Menion kills Stenmin. After three days, the Border Legion is beaten back from the Outer Wall of Tyrsis as a result of treachery—the wall falls when the traitors destroy the locks on the main gate, jamming it open. At the defenders' last stand on the Bridge of Sendic, the Northlanders abruptly break and run.
After being captured by Gnomes, Shea is rescued by the one-handed thief Panamon Creel and his mute Troll companion Keltset Mallicos. Journeying to the Northland, they reach the Skull Kingdom, where the insane Gnome deserter Orl Fane has carried the Sword of Shannara.
Infiltrating the Warlock Lord's fortress in the Skull Mountain, Shea reaches the sword and unsheathes it. He learns about its true power, the ability to confront those with the truth about their lives. The Warlock Lord materializes and tries to destroy Shea, but the youth stands his ground and confronts his enemy with the sword. Although immune to physical weapons, the Warlock Lord vanishes after being forced to confront the truth about himself: he had deluded himself into believing that he is immortal, but this is impossible. The Sword forces him to confront this paradox, and it kills him.
Keltset sacrifices himself to save his companions during the Skull Kingdom's destruction. In the south, the Northland army retreats after the Warlock Lord's downfall. Allanon saves Shea's life and reveals himself as Bremen's centuries-old son, before disappearing to Sleep. Peace returns to the Four Lands. Balinor takes up his country's rule, while Dayel and Durin return to the Westland, and Menion returns to Leah with Shirl. Shea and Flick reunite and return to Shady Vale.