Jess Aarons lives in a small town called Lark Creek and has a hard family life. He likes to draw and to run, and is kind of lonely; he's out-of-place in his family and the only person he really gets along with is his little sister May Belle. He's about to enter the fifth grade and dreams of being the fastest runner there. This dream is shattered on the first day of school, though, when a new girl named Leslie shows up and runs faster than anyone. At first Jess is crushed, but later he and Leslie end up becoming good friends.
Since they're both outcasts, Jess and Leslie spend a lot of time together. They take over a part of a nearby forest that's only accessible by swinging on a rope over the creek, and name it Terabithia. In this imaginary land, they're royalty. They can escape from the bullies and the boredom of fifth grade, and dream all they like. When the resident bully, Janice Avery, steals May Belle's Twinkies, Jess and Leslie get revenge on her by writing her a fake love letter and embarrassing her.
Most of the school year passes by. For Christmas, Jess gets Leslie a puppy, who becomes part of their kingdom in Terabithia. The two of them help Leslie's dad fix up their new home. When they find out Janice the bully is legitimately unhappy, they work together to comfort her.
By Easter, it's been raining really hard for a month and it's become more difficult to cross the creek to Terabithia. Leslie goes with Jess's family to church for Easter. After the service, Leslie and Jess, along with May Belle, argue about whether people go to hell if they don't believe in the Bible.
One day after Easter, Jess thinks it's too dangerous to go to Terabithia, with all of the rain that's been coming down. But he forgets all about it when the school music teacher, Miss Edmunds, calls and asks him to go with her to a museum. He goes and has one of the best days of his life. But when he comes home, he finds out that Leslie went to Terabithia without him and died when attempting to cross the creek.
At first, Jess can't believe it. Doesn't want to believe it. In meeting with Leslie's parents and spending time with her dog, he slowly begins to understand what he's lost…but also what he gained by having Leslie in his life at all. He goes to Terabithia to try and make sense of it, but his little sister follows him and almost falls into the creek herself. In rescuing her he realizes he's taken on some of Leslie's courage.
Later, Jess goes back to Terabithia and builds a bridge across the creek. When May Belle follows him again, he welcomes her to Terabithia and leads her across the bridge.