The story is written using the method of framing: the narrator tells a bit about his meeting with his friends, and one of them tells him a story about other man. These two stories are held in the plot. The main events take place in 1931, and the frame story – some years later. It begins with the narrator’s meeting with his 2 school friends: Rutherford and Wyland. Their conversation accidentally comes to the event which took place some years ago: an unknown man stole a plane with 4 passengers and hid in an unknown direction. When the narrator and Rutherford stayed alone, Rutherford said that one of the passengers – Hugh Conway – a man, whom both of them knew long before. And Rutherford said that he saw him after this accident - in a hospital in China. He gave the narrator the written story, where he described all adventures which Conway told him about. Here the second, main, story begins.
Hugh Conway, a 37-year-old member of the British diplomatic service, flies with 3 people in the plane: Mallinson, his young coadjutor; an American, Barnard; and a British missionary, Miss Brinklow. They are evacuated from India to Pakistan. But during the flight they notice that their route is wrong: the pilot goes completely in the other direction. Mallinson starts to panic, as for the others – they stay quite calm. Mallinson goes to the pilot’s room and sees that the pilot isn’t that man who was to be there.
The passengers understand that they’re in a trap. The pilot brings them to the wild mountainous place in Tibet and trying to land there he doesn’t manage it: the plane gets into the crash and the pilot dies. But before he says some words in Chinese, which only Conway understands, ‘cause he’s the one who knows this language. The man says to find a shelter in Shangri-La. Some time later they meet Chang and his people – they escort them to the lamasery Shangri-La. Conway and his friends are surprised that Chang, who lives in wilderness, far to civilization, perfectly knows English, is very polite and “modern”. They’re surprised much more, when they come to the lamasery – they find the central heating, modern bathes, musical instruments and other conveniences of the modern world there. While Mallinson is angry for all this situation and wants to go back home as early as possible, Conway and other heroes feel themselves good there: Conway is amazed with the nature of the valley, the local mountain Karakal (“blue moon”), people and their mentality; Barnard, as it turns out some time later, isn’t actually Barnard, but Chalmers Bryant – the famous impostor, who is wanted by the police of many countries, so staying in Tibet, he is in safe; miss Brinklow thinks that it’s her calling – to bring Christianity to this godless place.
Mallinson insists on their coming back to civilization, and Chang says him that nobody from the village wants to escort them so far, the only way-out is to wait for porters who bring them goods from the outer world from time to time. This waiting may last for some months, but there are no other variants for the heroes. So, they wait. They get acquainted with local culture, people and philosophy. As for the actual “authorities” of the settlement – the Lamas, they don’t meet guests, this honor is just for enlightened people. But in some time Chang says to Conway that the High Lama wants to see him, what is exceedingly strange and honorable. During this meeting Conway gets to know a lot about structure of the settlement (what stayed in secret for the four heroes before), about the Lama himself: he occurred to be a European warrior, who came there near 250 years ago. The Lama tells Conway about the philosophy of the lamasery – they don’t appreciate time as much as Europeans do, they do everything moderately, and that is their key to happiness, to longevity (the Lamas live for hundreds of years there). After this meeting there are a lot of another meeting between them, which affect Conway more and more greatly. Except of this he meets here a beautiful Chinese girl – Lo-Tsen – and falls in love with her, but she seems to not answer him the same.
During one meeting of the High Lama and Conway lama says Conway that he is his successor and dies. But when Conway comes back to his house, there Mallinson waits for him and says that the waited porters are near the Shangri-La and the young man’s love – Lo-Tsen is already there, also waits for them. Conway understands why the Chinese haven’t answered him for his love. He doesn’t know what to do: to stay in the paradise in the Earth or to go home. Mallinson persuades him to choose the second variant. Here the main story gets to its end. The narrator talks with the author of the written story – Rutherford – about his hero. They talk about his life know and both of them come together in guesses that he goes back to his paradise now.
