Meggie, a girl at the age of 12, sees a stranger staring at her outside her window and tells her father, Mortimer (or Mo, as Meggie calls him), her father invites the stranger in and who introduces himself as Dustfinger. Mo and Dustfinger go to Mo's workshop, where Mo works as a bookbinder. Meggie eavesdrops and hears them talking about unfamiliar people and places, such as a man named Capricorn. The next morning, Mo unexpectedly announces that he and Meggie have to go to Meggie's Aunt Elinor's house where Mo has to fix some books. They bring along their camper where, they eventually find Dustfinger on the road, who climbs on to the camper, journeying with Meggie and Mo to Elinor's house.
When they arrive, Elinor seems displeased but lets them in. Her house, like Mo and Meggie's, is full of books. Mo sets off to work and Meggie talks much to Dustfinger, where she is introduced to Dustfinger's pet, Gwin, a marten with horns on top of his head. One day, he puts on a show for her at night, claiming to be an entertainer and a fire-eater. A short while after, Mo is captured by these people with weird names, bringing along with him a book, Inkheart, that this Capricorn is desperate to get his hands on. Meggie and Elinor tell the police, but the police just think they are out of their minds.
A while later, they realize that Dustfinger has left, only to return a short while later. During the period in which Dustfinger is not there, Meggie packs her bag and ventures to find her father, only to be caught by Elinor. Dustfinger returns, and the three plan to venture to Capricorn's village where her father was being held. At arrival, they meet a guard named Basta, who seems to recognize Dustfinger. The three are taken to Capricorn's house where he waits for them. Meggie pulls out the real Inkheart book, which was only there because Elinor had switched Inkheart with another book, making Mo take the wrong book when captured. Elinor and Meggie are thrown into the cell where Mo is being held and they reunite. After this Meggie makes Mo tell the story of why they were there.
A long time ago, when Meggie was three, her father was reading Inkheart to Meggie's mother, Teresa. Mo found out that he had a special gift where he could bring things out of books just by reading aloud, but that came with a price, for everything that comes out of the book, something must go in. So, while reading chapter 7, three of the main characters from the book, Capricorn, Basta, and Dustfinger, come out of the book and into their house. Capricorn tries to fight Mo, but eventually Mo forces them out of his house. When he turns back, Teresa and their two cats that were sitting on her lap were gone and Meggie was crying. He later tried many more times to get his wife out of the book, but his power failed him.
In the morning, Capricorn brings the three (for now Dustfinger has been long gone) into a satanic church painted red with an enormous statue of Capricorn there. He makes Mo, which all the guards and maidservants call Silvertongue because of his ability, read treasure out of Treasure Island. When Mo starts to read Tales from A Thousand and One Nights, a boy appears out of the book, whom we later learn is named Farid. The prisoners are brought back to their cells along with Farid who has been put in the cell next to theirs. That night, Dustfinger breaks out all of the prisoners and they run to Elinor's car, where Basta and another guard named Flatnose chase after them. After a while, their car breaks down and they have to travel through the woods. They arrive at an abandoned village where they stay for a bit until they hear the guards coming with dogs to come and catch the group. The dogs smell the marten, which is obvious because martens stink, which happens to be right above where Mo is hiding. The dogs start biting and attacking Mo. Dustfinger sets them free and the group ties up the guards and puts them in an abandoned house where they had camped out for a bit.
They find a city where they can stay in a hotel for a bit while Elinor uses her secret credit card to buy them all new clothes and food. Farid becomes Dustfinger's apprentice and starts to learn the art of Dustfinger's fire. Elinor leaves in a rental car and Farid and Dustfinger stay for bit longer until Meggie and Mo leave. Dustfinger, Farid, Meggie, and Mo go to Fenoglio's house in a small village close to the city. Fenoglio is the author of Inkheart who may be able to give them another copy of Inkheart, since Capricorn had burned all the copies except for one that he kept. They are disappointed when they learn Fenoglio does not have another copy, but since they asked him he wondered about their story, which they had to tell him. He was interested to learn that his characters came to life and wanted to meet Dustfinger, but Dustfinger ran away with Farid trailing behind.
Fenoglio offers them an apartment so that they can live there for the time being when Mo fixes Fenoglio's books. Mo, on an urgent call, leaves for the airport leaving Meggie with Fenoglio and his 3 grandchildren.
When Elinor returns home, she expects to find everything the way she left it, but she was wrong. All the books had been pulled off of the shelves and trampled on and in her library full of her most valuable books, she finds all of them were gone, except for a dead rooster hanging from the ceiling as a mark of Capricorn and his men. When she looks outside, she sees an gigantic pile of ashes and realizes that those were her most valuable books.
After a while, Basta and Flatnose find Fenoglio and Meggie, taking them away to see Capricorn. When seeing Capricorn, Fenoglio reveals Capricorn's past. Though everyone knew the story that his father was a knight and his mother a princess, it happens to be that his father was a blacksmith and his mother, Mortola or the Magpie, was just the head maidservant. Capricorn takes them away to a cell in the attic of his house, where Meggie discovers that she also has her father's power, eventually bringing Tinkerbell out of Peter Pan.
Farid and Dustfinger sneak into the village where Dustfinger meets one of his old maidservant friends, Resa, who Farid thinks Dustfinger fancies. Resa is a mute who taught Dustfinger how to read and write who came out of the Inkheart story a while back after the misfortunate Darius, a man with the same talent as Mo and Meggie, but his fear of Capricorn mixes up things in the book and makes them turn out weirdly. Resa and Dustfinger conspire a plan to get Inkheart from Capricorn, which had to be stopped short because of the guards coming. Dustfinger and Farid run back to the woods and stay there for a while.
Given a test by the Magpie, Meggie brings out the tin man from the Hans Christian Andersen stories, which the Magpie lets her have along with some paper and a pen. Fenoglio writes a happy story for the tin man and puts him back into his book, in which Fenoglio then starts writing a counter curse for when Meggie has to read out a horrible villain called the Shadow. Gwin passes notes back and forth between Mo and Meggie, which are written in Elvish to let them know what was happening.
Elinor and Mo arrive at the village from the airport and talk to Farid after Dustfinger had gotten kidnapped and sent to the crypt by trying to recover the Inkheart book. They plan to try and stop the reading from happening, and Farid and Mo put on guard uniforms to blend in. In the night, shots are fired, and only Farid is injured by a whizzing bullet by getting a small cut on his head. Elinor then gets caught by trying to find Farid and Mo after not returning and is put in the crypt with Resa, who had been caught trying to steal the book.
Meggie is forced to put on a white dress for the reading and has the counter curse for the Shadow in her sleeve, just as planned. She also asks to see Dustfinger and finds her mom, Resa. Farid and Mo set Capricorn's house on fire as well as a close-by field. During which everyone is paying attention to the fire, she switches out the planned reading for Fenoglio's handwritten story. She creates the Shadow and Mo turns it against its master and kills Capricorn.
Fairies, glass men, and brownies have leaped from the book to take place for the guards and are quite happy in the village. Some come home with Elinor, which Meggie, Mo, Resa, and Darius, who Elinor thinks will be useful with his book knowledge, go and live in Elinor's large house. Gwin, Dustfinger, and Farid leave in the night after Dustfinger stole Inkheart from Mo.