The novel begins on the outskirts of the quiet village of Malgudi, where a simple villager named Velan mistakes Raju, newly out of jail and resting at the ruins near the river, as a holy man. Velan is reverential toward Raju and tells him of his problems, namely that his half-sister refuses to marry the man selected for her. Raju does not really care but since he is lonely, he is happy that somebody is talking to him. He thinks about how he just got out of jail and of his time before then as a famed tourist guide. Raju lived in Malgudi with his mother and father. He grew up as the train station was being built and eventually, after his father’s death, came to run his father’s spacious shop. He loved talking to people and was quite popular as a guide; his nickname was even "Railway Raju."
The next morning Velan brings his sister to Raju and he tells her placidly that "What must happen must happen; no power on earth or in heaven can change its course, just has no one can change the course of that river.” She is impressed and after her meeting with Raju she agrees to her family's wishes. This begins Raju's journey as a holy man. Dozens and dozens of villagers gather to see their Swami. They decorate the ancient temple, bring him food and gifts, encourage their sons to read and learn from the schoolteacher in Raju’s presence, and generally seek Raju’s counsel about all manner of things. Raju is concerned about his pretending but is often impressed with his own sagacity and decides he must stay here to avoid going back to his old village. He grows a long beard and long hair and becomes used to saying profound things.
After a few years, the rains disappear and famine and strife begin to affect the villages. Velan’s never-do-well brother comes to see Raju and admits that people are fighting due to the famine. Raju is distressed by all of this commotion and orders the brother to give the message to the people that they are not to fight and that he will not eat until they stop fighting.
When Velan’s brother finds Velan and the other elders, he is embarrassed that he mentioned the fighting to the holy man so he says simply that he told the Swami that there was no rain. He then repeats the part about Raju not eating so Velan and the others think Raju is about to undertake the sacrifice of fasting and praying until the rain comes. When the people pour into Raju’s area to look upon him and thank him, he realizes something strange is going on. Velan excitedly reminds him of what he’d said one time about this fasting and praying, and Raju rues that he made this up a while ago.
That evening, Raju wonders if he ought to run away but remembers the women and children and their gratitude and decides he must see this out. He calls Velan to him and begins to tell him his life’s story. Velan listens gravely.
Raju tells Velan of his childhood, his time at school, how he built up the business after his father's death, and how his fame as Railway Raju increased day by day. Most importantly, he tells of how his life changed when he meet Rosie. This is what Raju recounts...
One day, a stern and dry academic tourist named Marco arrives and enlists Raju’s services. His wife Rosie arrives not long after. Raju sets them up in a hotel and from there, after dropping Marco to admire old friezes, he takes Rosie to watch a king cobra dance to a flute. Rosie sways to the rhythm and Raju learns she is a dancer. He finds her beautiful and enticing and falls in love with her. He praises her dancing. He sees that she and Marco have a terrible marriage and fight constantly; she married him because he was rich and did not care that she was from a lower caste. He confesses his love for her and eventually the two start sleeping with each other.
Raju becomes more interested in Rosie than his shop or his friends or his mother. He cares little for tourists and they have to go away disappointed. Though Marco has no idea what is going on between Raju and Rosie, caring only for his caves and friezes and virtually letting Raju become a member of his family, Raju still cannot relax because it seems like distance has made Rosie fonder of her husband. She often worries that she is doing the wrong thing. Raju earns her affection back by telling her she must take up dancing again and that he will support her. She is elated and begins practicing. However, she needs to secure permission from Marco and he has always been antipathetic to her dancing, considering it base and useless.
Rosie prepares to spend a few days with Marco at Peak House and broach the subject. When Raju comes to fetch her, he can tell something is terribly wrong with the couple. Marco tells Raju his services are ended, and Rosie yells at him to leave.
Back home, Raju has a miserable month where nothing provides him solace. He cannot stop thinking about Rosie. His business continues to fail. To his delight, though, Rosie shows up at his doorstep one day and Raju announces to his mother that she will be staying with them. Rosie tells Raju that when she brought up the dancing to Marco, he did not like it and she accidentally mentioned that Raju did. The story of their affair came tumbling out and Marco cut her off completely. After three weeks of silence and completely ignoring her, he packed up and left for their home in Madras and told her she did not have a ticket. That was when she came to Raju and his mother's house. Raju promises to turn her into a star.
While Rosie works hard, Raju’s mother and the rest of the town cannot help but gossip about her. Raju loses his store and wonders how he will make money. He is taken to court for his debt but even though his mother angrily pesters him he cares little. He only wants to help Rosie become a famous dancer.
At her wits’ end, Raju’s mother asks her elder brother, a wealthy and commanding man, to come to the house to knock sense into Raju. It does not work, and despite the myriad of insults and threats, all that happens is that Raju’s mother decides to go away with her brother; she cannot bear to see Raju throw his life away for Rosie.
Raju is sad about the state of affairs with his mother, but devotes himself to Rosie and her career. He suggests she change her name to Nalini and she agrees.
Rosie/Nalini becomes very popular with her art of dance and, with Raju’s guidance and maintenance of her schedule, they both are earning money. They move into a huge house and begin moving in elite circles. Raju and Rosie’s relationship becomes a bit strained and he can see that she is unhappy, but all that matters to him is earning the maximum amount of money.
One day, Raju’s secretary Mani drops off a book for him. It is by Marco and is his long-awaited cultural history of South India. There is a brief thanks to Raju in it for his guide work. Raju is puzzled and decides to hide it from Rosie. When Mani tells her of it somehow, she demands Raju show her. She is happy for her husband, which makes Raju furious.
Not long after the book incident a letter arrives for Rosie but Raju sees it first and opens it to see correspondence from a lawyer that states: “Madam, under instruction from our client, we are enclosing an application for your signature, for the release of a box of jewelry left in safe custody at the Bank of ------, in the marketplace. After this is received we shall proceed to obtain the other signature as well, since you are aware that the deposit is in your joint names, and obtain the release of the said box, and arrange to forward it to you under insurance cover in due course." Raju is thrilled that there might be expensive jewelry but he does not want Rosie to see the letter because she might become emotional. He cannot stop thinking about it, however, and finally forges Rosie’s signature. He expectantly waits for the arrival of the jewelry box.
After several days of waiting, Rosie is giving a performance and Raju is watching. During the dance, the police superintendent comes with an arrest warrant against Raju for forgery. He realizes how grave his offense was but feels immense self-pity. When he tells Rosie, she soberly says it is karma because she had a feeling he was doing wrong. She says she will take care of their debts but the relationship is over.
Raju has his trial and has to spend two years in jail. There he is a model prisoner and actually grows to enjoy the peace and regularity of jail life. He learns from Mani that Rosie has settled in Madras and is doing well.
Raju concludes his tale of his past life and he again tells Velan that he is not a holy man but a common man like everyone else. Velan is unaffected by the story and promises never to say anything to anyone. Raju realizes he must go on with the fast.
A newspaper article garners a great deal of attention and people begin flooding Malgudi to pay homage to the holy man trying to end the drought. Crowds swarm around Raju and his wishes for some peace and privacy. His body begins to weaken and sometimes he is bitter against Velan for starting this whole thing. However, he finally decides this is his calling and he will fast properly and will devote himself to this with all care and energy.
On the eleventh day, doctors suggest that Raju is dying and must stop the fast; a government telegram concurs. However, in the evening, with the help of Velan and others, Raju gets up and walks to the river. He prays and then opens his eyes, looks about, and says, "Velan, it's raining in the hills. I can feel it coming up under my feet, up my legs” and sags down.
