"Teddy" begins in 1952 in the cruise ship cabin of Mr. and Mrs. McArdle. Their son, Teddy, is a ten-year-old boy who, it turns out, is a genius. Teddy subscribes to the Eastern religious philosophy and believes that he, like everyone else, has lived thousands of lives in previous incarnations. In his previous life, he says, he was a spiritual man in India and very close to enlightenment. Unfortunately, he met a lady and stopped meditating, which is why he was reincarnated in an American body. (It's hard to live a spiritual life in America, Teddy tells us.)
This time around, Teddy is careful not to make the same mistake again. He avoids emotional attachment and contact with women or girls. He meditates daily. He refuses to get caught up in the materialism of his parents and little sister, Booper.
Because of his wisdom and precociousness, Teddy has been analyzed and recorded by the world's top professors of religion and philosophy. On the day this story takes place, his family is returning home to America after a trip around Europe, where Teddy was interviewed at some top-tier universities.
Also on the ship, we soon discover, is a young teacher named Bob Nicholson, who knows of Teddy by reputation and has even heard some of his tapes. It's not long before Nicholson seeks out Teddy, who is sitting on the ship's sun deck and writing in his journal. Before Nicholson interrupts him, we get to read some of Teddy's entries, including the cryptic line: "It will either happen today or February 14, 1958 when I am sixteen. It is ridiculous to mention even" (4.20).
Nicholson is eager to hear Teddy's thoughts on religion, reincarnation, and education. Teddy explains quite a bit to him, including the idea that spiritual truth is very different than logical or intellectual knowledge. To get at truth, to eventually reach enlightenment, explains Teddy, you have to empty yourself of logic. He tells Nicholson that the apple Adam ate in the Bible contained "logic and intellectual stuff," and advises him to "vomit it up" if he wants to make any spiritual advancement (4.99). Teddy also explains that emotions are unimportant and get in the way, and lastly that people make way too big a deal about death. We've all died thousands of times, he explains, and you just get out of your body and go on to the next one.
At this point Teddy pauses to belabor his point a bit further. As an example, he tells Nicholson, maybe when he (Teddy) goes down to the pool today for his swimming lesson, the pool will be empty for cleaning. And maybe his sister, not knowing that it's empty, will come up behind him and push him in, and he could hit the bottom, fracture his skull, and instantly die. It wouldn't be a big deal because he'd go on to his next life.
Teddy finally leaves Nicholson to head down to the pool to his swimming lesson. After a few minutes of silent thought, Nicholson gets up and hurries toward the pool himself. Just as he gets to the door of the pool, he hears "an all-piercing, sustained scream – clearly coming from a small, female child. It was highly acoustical, as though it were reverberating within four tiled walls" (last paragraph). The common interpretation is that Teddy is dead, just as he predicted (twice). However, some believe the ending to be ambiguous – see "What's Up with the Ending?" for a full discussion.