When the mysterious Green Knight challenges a knight of King Arthur’s court to strike him with one blow from his axe then receive one blow in exchange in a year and a day, Sir Gawain accepts the challenge. When the Knight survives the blow, Gawain prepares himself to meet the Knight again, riding away from the court on All Saint’s day.
At a castle in an enchanted forest, Gawain receives the hospitality of a lord and lady and agrees to a daily exchange of winnings with the lord. As the lord hunts a deer, boar, and fox during three consecutive days, Gawain remains in bed dallying with the lady and receiving kisses from her. He returns all the kisses to the lord as per the terms of their agreement, but fails to return a gift he receives from the lady as a "lover’s token" – a green girdle she claims will make the wearer invincible. On New Year’s Day, Gawain meets the Green Knight at the green chapel and accepts two feints (blows that the Knight stops before they meet the flesh) and one blow that just breaks his skin.
The Knight explains that he is actually the lord of the castle sent by the sorceress Morgan le Fay to test Arthur’s knights and frighten Guinevere. The two feints represent the two days in which Gawain exchanged his winnings like an honest man, while the one real blow represents Gawain’s failure to return the green girdle. Gawain returns to Arthur’s court humiliated, and tells everyone what happened and that he plans to wear the green girdle as a symbol of his failing. All the knights of the court decide to wear it too, for Gawain’s sake, and it comes to be known as a symbol of honor.