Kate Croy and Merton Densher are secretly engaged to be married. They would love to wed quickly but they are always encumbered by financial woes, and Kate is also knee-deep in problems within her family. She lives with her aunt who is somewhat of a bully. Aunt Maud's friend, Mrs. Stringham, is companion to an American heiress, Milly Theale, who has arrived in London filled with enthusiasm for social life.
Milly finds Kate to be a far more enjoyable companion than Mrs. Stringham. She takes Kate with her when she visits Sir Luke Strett, one of London's finest physicians. Milly's constant worry is that she has an incurable disease, and although Sir Luke does not confirm her fears, he does not deny them either. Milly and Kate become convinced that Milly is terminally ill.
Merton returns to London from his trip to America, astonished to find the heiress with whom he had enjoyed a romantic dalliance now residing in the house with his betrothed. Kate decides that Marton should pay Milly a lot of attention which confuses him, but he is relieved that Milly has not disclosed their closeness.
Milly decides to go to Venice with Mrs. Stringham, and shortly after she departs, Aunt Maud, Kate, and Merton follow them. Milly has a palazzo in Venice, and it is a place where she has been extraordinarily happy. She throws a party, and it is during the party that Kate reveals to Merton that she has a plan that will cure their money woes and enable them to get married. She thinks that Merton and Milly should marry, so that when Milly dies, he will inherit her considerable wealth. Merton had already become suspicious, and he tells her that he will only go along with the plan if she agrees to sleep with him first.
Merton remains in Venice with Milly and Mrs. Stringham while Kate and Aunt Maud return to London, but Milly soon learns of their plan and will not have anything to do with Merton at all. He returns to London, but on arriving learns that Milly has died.
Milly had genuinely fallen in love with Merton during his trip to America, and surprisingly leaves him a large chunk of her wealth in her will, but he feels remorseful and refuses to accept it. He also informs Kate that he will only agree to marry her if she turns down the money as well. On the other hand, if she wants to accept the money, he will sign it over to her, but they will never be together again.
