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Our narrator is a middle-aged man who just attended a funeral for someone in his immediate family. He's driving around the town where he grew up, because he wants to avoid the social niceties implicit in such an event, and finds himself drawn to the farm at the end of the lane where he once had a friend named Lettie Hempstock. He finds himself asking the old woman there if he could sit by their duck pond and reminisce, and then proceeds to relate this extraordinary tale:
He is a pretty lonely kid (not a single friend shows up for his seventh birthday party), who loves to escape into the world of books when he's not busy blowing things up in his "laboratory" (a shed to which his father has banished his chemistry set). His parents have come across hard times financially, and are forced to take in boarders to help supplement their income. One of the boarders, a down-on-his-luck opal miner from South Africa, decides that their car is the perfect vehicle in which to end his life. Gee, thanks dude.
When the boy and his father discover the body they also meet Lettie Hempstock, a mysterious eleven-year-old girl who lives on the farm at the end of the lane with her mother and grandmother. The boy is sent with her to keep warm in their kitchen while the police sort things out with the dead opal miner, and it's there that he realizes these women are not altogether ordinary. They do, however, make some really good food.
When strange things start happening to him, like waking up choking on an old coin, he seeks out Lettie because she seems like she's got all the answers. The two of them go on an adventure to bind the creature that is throwing money at people, but during this process things go south. The thing (that Lettie's Gran refers to as a "flea") manages to make the boy a doorway from her world into ours, and she introduces herself to his family as Ursula Monkton—their latest boarder and childcare provider extraordinaire.
His whole family is enthralled with her, especially because she has impeccable timing, but the boy knows there's something just not right. She tries to make sure that he never leaves their property again, and in the process possesses his father to commit attempted filicide. The boy just barely escapes being drowned in his own bathtub and runs to the Hempstock farm.
The Hempstock women—Gran, Ginnie, and Lettie—patch him up and try to remove the rest of the magical doorway that Ursula has embedded in his body, but a part of it is too deeply ingrained in his heart. So when they finally convince Ursula to take the doorway back to her own world, she says she can't without tearing him apart. Yikes.
That's when Lettie summons the "varmints" to finish her off, hunger-birds that act as inter-dimensional cleaners who eat things as a way of preventing them from proliferating where they don't belong. (We're pretty sure that we are "varmints" when it comes to Girl Scout cookies. Someone has to keep them in line.)
Unfortunately, after they eat Ursula Monkton the varmints decide that they absolutely, positively, cannot go back to their own dimension until they eat the piece of the doorway that is left in the boy's heart as well. When they go after him, Lettie sacrifices herself to save his life. Gran and Ginnie come to the rescue and banish the varmints, but not before they manage to kind-of kill Lettie. (She's not quite dead, really, but she's very badly hurt.)
When Ginnie brings him home to his parents she causes him to somehow forget all the strange, wonderful, and terrible things that have happened, and he's now convinced that this whole time he's just been at a going-away party for Lettie, who is going to Australia to be with her father.
Fast-forward to the present day and all of these memories come flooding back. He realizes that the old woman is Gran Hempstock, who hasn't aged in forty years. When he leaves to go back to his family who are waiting for him, the memories fade again, and he thinks about the girl Lettie who moved to Australia a long time ago.