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The Moonstone opens with a "family document" that records how the Moonstone (a huge, yellow diamond) was stolen in India by an English soldier and was taken back to England.
Now flash forward a couple of decades: our narrator is now Gabriel Betteredge, the old steward or butler for a wealthy English family living in the country. Betteredge has been given the job of describing how Rachel, the daughter of his boss, inherited the diamond from her wicked uncle on the day of her eighteenth birthday, and how the diamond disappeared that very night. Here's how it all happened:
The diamond is brought to the family mansion by Rachel's cousin, Franklin Blake. Franklin is afraid that someone will try to steal the diamond, so he leaves it under lock and key at the bank until it's time to give it to Rachel. He notices three Indians, dressed as entertainers, who follow him from the city. He wonders whether they might be after the diamond – since, after all, the diamond was originally stolen from India. Franklin has been living in Europe for the last few years, so it's been a while since Rachel has seen him. He's in love with her (it was OK to marry your cousin back then) and, for the few weeks before Rachel's birthday party (when she is to be presented with the diamond), the two cousins spend all their time together.
But Rachel has another cousin, Godfrey Ablewhite, who is also in love with her. And Godfrey is much better looking than Franklin. Godfrey is tall and athletic, and what's more, he's incredibly religious and is in charge of about a zillion charities in London. Betteredge doesn't think Franklin stands a chance.
Meanwhile, one of the servant girls in the house, Rosanna, falls in love with Franklin Blake. Too bad he never even notices that she exists! Poor Rosanna becomes depressed, especially when she remembers that she used to be a thief (she's reformed now).
On the night of the birthday party, the diamond disappears from Rachel's dressing room. Rachel is understandably upset about it, but she seems to be particularly angry with Franklin Blake – especially after he calls the police to try and recover the missing diamond. Sergeant Cuff, a famous detective, arrives, and starts looking for clues. Rachel is so upset that she leaves the house in a huff and is very rude to Franklin.
Rosanna, the servant girl, is acting weird, too. Sergeant Cuff suspects that Rachel "stole" her own diamond in order to pawn it and pay off some secret debts, and that Rosanna was in on the secret. Rosanna disappears. It turns out she's committed suicide by throwing herself into the quicksand down by the ocean. She left a note with a girl in the village, but no one bothers to go read it.
Franklin Blake eventually confronts Rachel to find out what's up – Rachel says that she saw him steal the diamond with her own eyes! Franklin can't believe it. He figures he must be going crazy, since he has no recollection of going anywhere near Rachel's dressing room after the birthday party. But a local doctor, Ezra Jennings, has a theory: he figures Franklin might have taken some opium that night, and that the opium might have made him sleepwalk. Franklin doesn't remember taking any opium, but someone could have slipped it to him secretly. So they conduct an experiment: Franklin goes to bed in the same room where he slept on the night of the birthday party, and they give him some opium. After a while, sure enough, he sits up in his sleep, walks out of his bedroom, and heads to Rachel's dressing room – just as he must have done on the night of the birthday party.
The question is, of course, what happened to the diamond after Franklin "stole" it? They decide to check with all the major pawnbrokers in London. Finally, they see someone in a disguise picking it up at a bank. By the time they catch up with the disguised man, it's too late. They find the man dead in his room at a hotel. Guess who it is? It's Godfrey Ablewhite! Turns out he wasn't really as religious as he acted – he was a total hypocrite, and he needed the diamond to pay off his debts. The three Indians from the beginning of the novel have murdered him and taken the diamond back to India.