In 1943, during the Pacific War, 12-year-old Mahito Maki's mother Hisako is killed in a fire. Mahito's father Shoichi, an air munitions factory owner, remarries his late wife's younger sister Natsuko, and they evacuate to her estate in the countryside where they live with several old maids. Mahito struggles in the new town as he continues to grapple with the grief of his mother's death, does not fit in at school and endures a tense relationship with Natsuko, who is now pregnant. Mahito also encounters a mysterious grey heron at the estate who frequently pesters him. On the way home one day from a fight with other school children, Mahito purposefully injures himself by hitting his head with a rock. While recovering from his wound at the estate, Mahito discovers a copy of the novel How Do You Live? with his mother's handwriting inside, which she intended as a gift for him when he was older. Mahito eventually discovers that the heron can speak, and is actually a small man inhabiting the heron's body. The heron taunts Mahito and leads him to a mysterious tower in the woods near the house, which was built by Mahito's great-uncle, a famous architect who disappeared. The heron claims that Mahito's mother is alive and tells him to enter the tower to save her. Mahito is hesitant to enter at first, but when he sees an ill Natsuko mysteriously enter the tower one day, he decides to save her and enters, finding himself in an alternate world filled with magic. In the alternate world, Mahito encounters various characters including Kiriko, a seafaring woman who is a younger version of a maid at the estate; Himi, a young woman with magical powers who assists Mahito and Kiriko, and Natsuko's great-uncle, who rules over the world as a wizard with great powers. Mahito, Himi and the heron infiltrate a castle guarded by giant man-eating parakeets and find Natsuko, who initially resists leaving with them until Mahito addresses her as his real mother. Back in Mahito's world, a maid tells Shoichi that the tower was not built and was actually formed after a meteorite struck the ground, and that when Hisako was younger she once disappeared for a year before inexplicably returning. Himi is captured by the parakeets during their escape. While rescuing Himi from the Parakeet King, Mahito meets with the great-uncle. The great-uncle shows Mahito building blocks which he has used to maintain balance in the world as well as a giant floating stone which contains the great-uncle's power. The great-uncle asks Mahito to take control of the stone and maintain balance in the world, explaining that only someone blood-related and free of malice can control the stone. Mahito declines, choosing instead to return to his own world and telling the great-uncle that his head wound shows that he is not free from malice. The Parakeet King seeks to usurp the great-uncle's power and cuts the building blocks in half, destroying the stone and causing the alternate world to collapse in on itself. While escaping, Mahito offers to take Himi to his world; however, Himi declines, revealing that she is a younger version of Hisako and that she and Kiriko must return to her own time to ensure that Mahito will be born. Mahito, Natsuko, and the heron return to their world and are reunited with Shoichi. An epilogue shows Mahito living happily with his family two years later after the end of the war.