Set in Britain during the Blitz of WWII, "The Thing in the Forest" opens with two girls, Penny and Primrose, leaving London to stay in the country while the city is being bombed by Nazi planes. Penny and Primrose make friends while riding in the same train car. Bonding over a shared fear of the other evacuated children, the girls vow to stick together while they are away from their families.
On the first day at the mansion house which the government has commandeered from its owner to turn it into a military hospital, the girls decide to explore the forest. As urban children, neither has been in a forest before. A younger girl, Alys, wants to come with them, but the girls run ahead to leave her behind.
At a clearing in the forest, Primrose and Penny hear and smell something coming toward them. They crouch behind a log and watch as a giant creature moves past them sluggishly. The worm-like creature has a blank, miserable fleshy face, crawls on its forearms, and has a tubular body made up of wounded skin and household detritus such as dishrags and nuts and bolts. It emanates a stench of rotten garbage. After the Thing passes, the terrified girls leave the forest without discussing it. The next day, they are sent to stay with different families.
After the Blitz ends, the girls return to their mothers in London. Both lose their fathers during the war. Primrose's father dies while fighting in the Far East, and Penny's dies while trying to extinguish a blaze on the London docks. Penny pursues education, eventually becoming a child psychologist. Primrose works odd jobs while spending much of her time looking after the children her mother has with her second husband. Primrose eventually discovers that she has a talent for storytelling, and becomes Aunty Primrose, a children's entertainer who entertains at parties and in malls.
In 1984, the women return to the mansion house on the same day. The house has been turned into a museum. Both women split off from the tour and linger in a room of exhibits. They both lean in to examine a faux-medieval text that shows an illustration of a knight slaying a creature. They recognize each other and then read the legend of the worm-like creature that lives on the mansion grounds. Lords of the manor have apparently killed the creature several times, but each time it only splits into two worms and continues living.
Over tea on the museum grounds, the women shares details of their lives, which coincide in several ways. Both lost their fathers at war, both are unmarried, and both have professions dealing with children. Eventually, they talk about the Thing they saw as children. Neither of them doubts that they really saw it, and they both assume the Thing must have taken Alys. Penny says that she believes it was an encounter with something that was more real than they were. The women agree that there is comfort in knowing they are not crazy. They also agree that the encounter determined the rest of their lives.
Although they make plans to meet for dinner, neither woman goes to the restaurant. The next day, they each go alone into the forest where they saw the Thing. Primrose tells a story in her head in which she is the protagonist, narrating her actions in third-person as she goes deeper into the forest and sits on a mossy mound. She reflects on how she learned Santa didn't exist, and on her father's death. She eventually gets up and leaves the forest.
Penny takes a circuitous route to reach the center of the forest. She thinks about the Thing every day, and she wants to confront it. She finds a clearing where the ground is flattened and there are bones and household detritus strewn about. She waits for the Thing to arrive, reflecting on how she became a psychologist who deals professionally in dreams and works with severely autistic children because her encounter with the Thing gave her the capacity to sit in the world of the unthinkable. The sound and smell of the woods changes as the Thing begins to materialize around her. However, the Thing doesn't arrive as expected. Penny leaves the forest and returns to her bed-and-breakfast.
After stepping off the train back to London, Penny and Primrose see each other in the crowd but do not acknowledge each other. The narrator comments that they are each other's witness, and mutually prevent the other from the comfort of believing they imagined the Thing.
Back at work, Penny cannot focus on her patients' concerns. Her obsession with the Thing drives her to return to the forest clearing again. She arrives and immediately smells and hears it coming. She relaxes her nerves, clasps her hands, and awaits the opportunity to stare the creature in the face and see what it is.
Meanwhile, Primrose is entertaining children in a gleaming mall while it rains outside. For the first time, she tells the story of her and Penny seeing the Thing in the forest. The first line of her story is the same line that begins "The Thing in the Forest": "There were once two little girls who saw, or believed they saw, a thing in a forest."
