Rachel Verinder is an independent young woman being courted by two of her cousins: Franklin Blake, a resourceful young man, and Godfrey Ablewhite, a philanthropist. The rest of the household consists of Gabriel Betteredge, the venerable family servant, and Rosanna Spearman, a housemaid with a suspicious past. Dr. Candy, a local doctor; his assistant Ezra Jennings; Rachel's cousin, Drusilla Clack; the family lawyer, Mr. Bruff; and a group of Indian jugglers are also involved.
Many of the characters in the novel contribute to the unravelling of the narrative. The book begins with an account of the Moonstone theft in India by Rachel's uncle. The events of the 18th birthday party and the disappearance of the diamond are told in the next section by Gabriel Betteredge. From Gabriel's perspective, Rosanna and Rachel are both suspects given their strange behavior after the disappearance of the diamond. Rosanna commits suicide, and the crime is left unsolved.
Over the next year, the mystery is unravelled. In one section, Franklin explains that he was in love with Rachel who shunned him. After some time away, he discovers that Rosanna was hopelessly in love with him. Rosanna found some incriminating evidence which showed that Franklin himself stole the Moonstone. She killed herself in order to keep him safe.
Franklin finds out that Rachel actually witnessed him stealing the Moonstone but protected his reputation at the cost of her own. After befriending Dr. Candy's assistant, Ezra Jennings, Franklin discovers he was dosed with laudanum the night of the theft. In the section narrated by Ezra, Franklin undergoes an experiment to replicate his medicated condition on the night of the birthday party. They discover that Franklin did indeed steal the diamond in a narcotic trance, but no one knows what he did with it.
In other sections narrated by Franklin, Cuff, Dr. Candy, and Gabriel, the whereabouts of the diamond are discovered. In the end the stone is seized by the Brahmins, the Moonstone's caretakers, who have followed it from India. They return it back to its sacred place in a Hindu temple. Rachel and Franklin are married, and the matter is considered closed.