Twelve-year-old Seth disobeys his grandparents’ wishes by exploring Fablehaven off the main paths. He bribes two satyrs, Doren and Newel, with batteries to be his guides. The satyrs take Seth to an area ruled by nipsies — tiny creatures adept at finding gold and jewels.
The satyrs need Seth to help them get past the traps set for intruders so they can obtain some of the gold. Once the satyrs are inside their land, the nipsies ask them for help in the attack from dark nipsies. Seth and his friends help the good nipsies and receive a reward, but Seth wonders how to tell his grandparents about the corrupted nipsies, without revealing he disobeyed them.
Family friends Tanu and Warren arrive at Fablehaven after being on missions. They hoped to find out whether their secretive ally, the Sphinx, is actually the leader of the Society of the Evening Star (SES.) The SES wants to destroy Fablehaven and all other magical sanctuariesm, but Tanu and Warren found no evidence to support the claim of the traitor, Vanessa. But Warren does inform them that the Knights of the Dawn, the organization against the SES, is having their first meeting in 10 years, and they want Kendra to attend.
After much debate, Kendra is allowed to attend as long as Warren, Tanu and Coulter go with her to protect her. Later that night, Seth tells Kendra about the nipsies, and she tells their grandfather. Tanu and Coulter investigate and find that more nipsies have darkened. They also believe they saw a dwarf that had been changed into a dark creature as well.
Kendra and her friends fly to Atlanta to attend the Knights of the Dawn gathering. Although they don’t learn anything new about the Sphinx, Kendra is asked to go on her first special mission with the Knights. She is to help retrieve an artifact from Lost Mesa, a magical refuge in Arizona.
Two Knights, Dougan and Gavin, will go with her. Gavin is a new recruit, only a year or so older than Kendra. Warren will accompany them as Kendra’s bodyguard. The Knights are all warned to be on their guard as it is believed that the SES has infiltrated their ranks to spy on them.
Back at Fablehaven, the strange Shadow Plague is infecting more magical creatures. Dark fairies invade the land around the house, trapping Seth and his grandparents inside. Tanu uses magic powder to turn himself into gas so he can evade the evil fairies and return to the house. Coulter is turned into a shadow creature, but does not turn evil.
Grandpa releases Vanessa from prison to question her about the plague. She can give them no answers but does accuse the Sphinx of setting it loose on Fablehaven in order to destroy it. Frustrated, Grandpa returns her to her prison.
Kendra uses her magic abilities to discern a secret path to the top of Painted Mesa where an ancient artifact is said to reside. Once on the plateau, they are attacked by Kachinas — ancient Indian spirits. A fierce battle ensues, and one of their party is thrown over the side of the mesa.
Gavin saves Kendra from harm. Kendra and the others find the entrance to a tunnel they hope will lead them to the artifact. They overcome several more obstacles, and a poisonous plant kills someone in their party. They finally encounter a dragon. Gavin admits that this is why he was chosen to come, as he can speak to dragons. He uses his ability to subdue the creature.
Unfortunately, when they find the artifact’s hiding place, instead of finding the artifact they find a note saying that it has been given a new home in Fablehaven. They return to the sanctuary with heavy hearts, which turn even heavier when one of the sanctuary workers steals a strongbox they’d pretended held the artifact. This same worker slashes the tires on all their vehicles, making it impossible for them to follow him and impeding their getting to the airport to return to their homes.
Seth takes some of Tanu’s potion to transform into a gaseous state. He and his grandfather follow the shadow forms of Tanu and Coulter to a cave. Inside, Grandpa is frozen with terror as an ancient demon named Graulas speaks to Seth. Seth is immune to fear because of a potion he took many weeks before.
Graulas was surprised at Seth’s past heroics and wanted to meet him. Graulas explains that the lord of the dragons — Navarog — was released by the Sphinx. Navarog took the nail Seth had pulled from the revenant weeks ago and brought it to another demon residing at Fablehaven — Kurisock. The demon is more shadow than substance, and the nail is undoubtedly giving him the power to corrupt the inhabitants of Fablehaven.
Kendra and Warren return to Fablehaven and discuss what they’ve learned with the others. They in turn share the news about the Shadow Plague. Evil brownies take over the house at night and rig a series of deadly booby traps so that the family must make a careful escape the following morning. The family and their friends run to the fairy pond, one of the few places in Fablehaven that the Plague cannot contaminate.
Once there, Grandfather confers with several magical creatures and learns that Patton Burgess hid an artifact in an old mansion. Grandpa, Grandma, Dale, Warren and Seth set out to find the artifact. Unfortunately, all except Seth are turned into shadow creatures by the evil spirit of a scorned dryad.
The nail Navarog gave to Kurisock somehow binds him to this spirit and allows them to turn good people and creatures into evil shadows. Seth manages to find the artifact — a metallic sphere — and escape the spirit. As he presses markings on the sphere, the former refuge warden, Patton, is transported to Fablehaven. Patton and Seth return to the fairy pond to discuss how they can defeat the Shadow Plague and save everyone.
Patton is reunited with his naiad wife, Lena, who helps them recover a bowl belonging to the Fairy Queen. Kendra believes if she risks crossing onto sacred fairy land to return the bowl, the Fairy Queen might allow her to live and also give her information that could help them fight the Shadow Plague.
After battling vicious naiads to cross the pond to the Queen’s island, Kendra returns the bowl, and the Queen speaks to her. She agrees to destroy the fairy shrine in order to create a talisman that can defeat the Shadow Plague. Kendra must keep the talisman with her as it will protect her and those around her from infection. However, someone must join the talisman to the evil nail imbedded in a tree near Kurisock. That person will die.
All of the magical creatures band together to help Kendra, Seth, Patton and Lena get to Kurisock’s evil lair. A great battle ensues between those loyal to Fablehaven and those infected with the Shadow Plague. In the end, Lena sacrifices herself to touch the Fairy Queen’s talisman to the revenant’s nail. The plague is immediately reversed. Patton and Kendra mourn Lena’s death for several days until Patton must return to the past. He assures Kendra that he does not blame her for his wife’s death. He looks forward to going back in time. He won’t tell Lena about her death in the future, but he will spend the rest of his life loving her. Kendra’s grief is eased.
When she finally leaves her room, she finds that her friends and family are celebrating her 15th birthday a month early. Unfortunately, the celebration has to end because she and Seth must return to their parents’ home. Their grandparents assure them that they will have two bodyguards watching them at all times to keep them from being harmed. They also learn that the Sphinx was confronted as a traitor but he escaped capture.
Before she heads home, Kendra reads a letter from Gavin in which he tells her he’s on a mission or would have escorted her home. He’s looking forward to being one of her bodyguards in the future. She is thrilled when he signs his letter as her admirer.