After Mr. Pott loses one of his legs working for the railroad, he buys a few model trains and sets them up in his backyard. While on a walk, he sees a young girl fashioning a village out of shoeboxes. Mr. Pott is inspired to build a miniature train station out of brick and slate.
Mr. Pott enjoys the work and begins building an entire village based on Fordham, the village where he lives. Visitors begin coming to see his project, and though Mr. Pott would rather be left alone, he treats the tourists kindly and allows them to view the village on weekends. During the week, he works on it uninterrupted. He befriends a children’s author named Miss Menzies, and she begins to help him.
An undertaker named Mr. Platter and his wife live in a town near Fordham. They begin hosting teas along the river near their home. As time goes on, they notice a decline in the attendance of their teas. They discover that people are going to view Mr. Pott’s model village and having tea at the inn in Fordham instead of coming to their riverside stand.
Mr. Platter decides to install his own model railway and village. He buys everything ready-made, but what his village lacks in quality, it makes up for in grandeur and scale. However, every time Mr. Pott finishes a new building for his village, fewer tourists come to see Mr. Platter’s village, called Ballyhoggin. Mr. Platter begins taking his boat down the river to spy on Mr. Pott so he can keep pace with Mr. Pott’s building installations.
Meanwhile, Pod and Homily Clock, along with their 16-year-old daughter, Arrietty, are once again searching for a new home. The Clocks are Borrowers: tiny people who live secretly in human houses and “borrow” food and other items they need. Spiller, a friend of the Clocks, hears about Mr. Pott’s model village, Little Fordham, and ferries the family down the river so they can see it.
The Clocks are delighted with the rows of miniature cottages and begin furnishing one to use as their home. Between borrowings from Mr. Pott’s house, clothes from the village’s plaster figures, gifts from Spiller and items left behind by visitors, the Clocks have everything they need. One day, however, Miss Menzies sees the Borrowers and begins to watch them carefully. She never lets them know they have been seen, but grows fond of the Clocks and purposefully leaves behind items they might find useful.
Arrietty eventually notices Miss Menzies and goes to speak with her. The two become friends. Arrietty teaches Miss Menzies about Borrowers, and Miss Menzies tells Arrietty stories from her childhood. Miss Menzies also tells Mr. Pott about the Borrowers, but since he only half-listens to her, it takes him a significant length of time to discover the truth. Miss Menzies and Mr. Pott are careful not to disturb the Clocks, and Arrietty is the only one who knows they have been discovered.
The Clocks remain out-of-sight of the visitors but are unaware that Mr. Platter comes down the river and spies from the bushes. Mr. Platter sees them and despairs because he knows nothing in his village can compete with the live inhabitants. Mr. Platter tells his wife that they are ruined, but she suggests they steal the Borrowers and place them in Ballyhoggin. They decide to travel to Little Fordham at night. Mr. Platter will make a sound at the front of the Clocks’ cottage, and Mrs. Platter will be at the back door with a net when the family tries to escape.
A few days later, Miss Menzies becomes worried. Arrietty has not been to speak with her, and the little cottage’s door has been left open for several days. Mr. Pott and Miss Menzies decide to remove the cottage’s roof to check on the little family. They find the beds unmade and all of the Borrowers’ clothing, with the exception of their nightclothes, still there. Miss Menzies and Mr. Pott don’t know if the Borrowers will return, but in an effort to alleviate their worry, they decide to fix up the little house, putting in a stove and running water and furnishing the rooms.
Meanwhile, the Clocks find themselves in a cardboard box in the Platters’ attic. The Platters bring them food several times a day but generally leave the Clocks alone. Pod establishes some ground rules for the family. He says they must never let the Platters know they can speak and understand speech. He also instructs Homily and Arrietty to always be in the box when the Platters come into the attic, so that they don’t know Borrowers can climb.
In their free time between meals, the Clocks carefully explore the attic, searching for any tools they can use, as well as a potential escape route. Their initial plan is to get inside the walls and climb down to the first floor, thinking that they can escape that way. The walls prove innavigable, however. The Clocks are able to open the attic window, but there is no way down from the roof. They begin to lose hope.
The Platters, thinking that the Clocks cannot understand them, discuss their plans for the village and the Borrowers during the Clocks’ meal times. The Platters are constructing a house that will function as a cage for the Borrowers. One side will be entirely glass, so that visitors can see in, and the furniture will be arranged so that there is nothing to hide behind. The Clocks cannot bear the thought of constantly being seen by humans.
One day, Arrietty suggests that the Clocks fashion a hot air balloon from the items they have found in the attic and fly out the window. Pod and Homily are skeptical, but Arrietty shows them an article in one of the old newspapers left in the attic that explains how hot air balloons function and even includes diagrams. The Clocks begin to build their balloon, and when the weather is right, they fly out of the window. After an initial struggle to attain the proper altitude, the Clocks are able to direct their balloon toward Little Fordham.
They make it back home and find Spiller there. They are all happy to see each other, and the Clocks are delighted with the improvements the humans have made to their cottage. Arrietty explains her friendship with Miss Menzies, and Pod becomes upset. Pod goes for a walk, and when he returns, he explains that there is always risk involved when Borrowers interact with humans, even well-meaning ones.
Pod is also concerned that the Platters will search for them at the cottage, so he says they must move again. He tells Arrietty that if she had been honest about Miss Menzies initially, they would have moved and would not have been captured by the Platters. Spiller offers to take them to a nearby mill, where he thinks they would be comfortable. Arrietty promises not to speak to humans anymore, and the Clocks plan to take a few days to pack and rest before leaving Little Fordham.