Daniel Deronda begins in medias res (that's fancy way of saying "in the middle of things") in September of 1865. A handsome young man named Daniel Deronda watches a young lady play roulette at a hotel casino in Leubronn, Germany. He's trying to figure out whether or not she's pretty. We find out that the girl's name is Gwendolen. She's been doing a great job gambling, but when she notices Daniel watching her, she suddenly loses all of her money. To make matters worse, not too long after that she gets a letter from her mom that says that their whole family has lost everything in a bad business deal and that she needs to come home immediately. Gwendolen pawns her turquoise necklace in order to earn a little bit of money, but somebody buys the necklace and anonymously returns it to her. Gwendolen suspects that it was Daniel.
We flash back to a year earlier to get the full story of how Gwendolen has gotten to this point. Gwendolen and her family move to Offendene following the death of Gwendolen's stepfather; her mother's sister and her family live nearby. They decide to invest a lot of time and money into finding Gwendolen a good husband, because they think she has what it takes to make a good match. Meanwhile, Gwendolen's cousin Rex falls head over heels for her and tells her so. She brushes him off, and things start to get awkward with the family. Rex leaves town.
One day the family goes to an archery match. Gwendolen meets Grandcourt. Grandcourt takes a shine to Gwendolen. That night at a party, he asks her to dance. Then he invites Gwendolen and her mom to go horseback riding at his place, where he attempts to propose to Gwendolen. Another archery match follows. Gwendolen receives a mysterious letter and meets Lydia Glasher, who tells Gwendolen that she is Grandcourt's mistress and that they have four kids together. Gwendolen tells Lydia that she won't interfere. Gwendolen is shaken up and decides to travel to Leubronn with the von Langens. We are hereby caught up to the point in time when the novel began.
Meanwhile, we learn a little bit more about Daniel. We find out that, ever since he was thirteen, he has been trying to figure out who his parents are. He has lived with Sir Hugo Mallinger his whole life. He suspects that Sir Hugo is actually his dad and that he was born illegitimately, but he's always been too shy to ask.
One day, Daniel rows out on the Thames River and notices a young woman standing on the riverbank looking upset. He realizes that she is going to try to drown herself. He gets her attention and keeps her from drowning. He takes her to live with the Meyrick family. She reveals that her name is Mirah, she's Jewish, and she came to London to find her family. Her evil father took her away from her mom and brother when she was six, and she has only recently come back to find them. She has given up hope, though, which is why she tried to drown herself.
Gwendolen, in the meantime, comes back to Offendene to find her family in total ruin. She doesn't want to get a job as a teacher or governess, though, so she asks Klesmer to help her become a singer. He tells her she has a snowball's chance in Arizona – she's never going to make it in the cutthroat world of the stage. Totally distraught, Gwendolen comes really close to taking a job as a governess for the Mompert family, but then Grandcourt proposes to her and she accepts.
Daniel becomes interested in learning more about Judaism. When he's in Frankfurt, he goes to the synagogue and meets an old man who asks him who his mother is. When Daniel gets back to London, he starts hanging out more and more in the Jewish neighborhoods. He sees a shop with the name "Ezra Cohen" above the door. He realizes that Ezra is Mirah's brother's name and goes in and gets to know the family. They invite him back for Sabbath dinner. At dinner, he gets to know Mordecai, a man he met earlier in the secondhand bookshop. Mordecai and Daniel continue to get to know each other. One night at a pub called the Hand and Banner, Mordecai mentions that his sister Mirah was taken from him and his mother when she was just a little girl. Daniel realizes that Mordecai is the brother that Mirah has been searching for (his real name is Ezra, but he also goes by Mordecai). Well, that was easy. Daniel stalls for a few days, but eventually he reunites the two siblings. Mirah promises to take care of Mordecai.
Meanwhile, Gwendolen is not happy as Mrs. Grandcourt. She feels incredibly guilty about the harm she must be causing to Lydia and her kids. She starts being really rude to Grandcourt. Grandcourt has Lush, his henchman, tell Gwendolen the details of his will. She's going to get a pretty cruddy deal. Grandcourt makes Gwendolen come yachting with him in the Mediterranean.
Sir Hugo tells Daniel that his birth mother has sent for him and that he has to go to Genoa as soon as possible, which conveniently puts him in the same place as Grandcourt and Gwendolen at the very same time. Daniel meets his mother, Leonora Halm-Eberstein, who also goes by the names "The Princess" and "Countess Alcharisi." She reveals to him that she is dying. She also reveals that he is Jewish.
After Daniel receives all of this news, there comes another shock: Grandcourt drowned while he and Gwendolen were off sailing. Daniel hears Gwendolen's side of the story. She feels guilty for everything that has happened and basically hates her whole life. Daniel tells her it's not her fault and that she has to start living her life with the belief that she can and will be a better person.
Daniel goes back to London and tells everyone that he is Jewish. He proposes to Mirah. Gwendolen absolutely flips out when Daniel tells her the news, but she ends up congratulating him. Daniel and Mirah get married. They plan to carry on Mordecai's work of starting up a new Jewish nation. Mordecai dies with Daniel and Mirah at his side.