In Burma, during 1925, several English officials resist a directive to open their closed society somewhat by admitting a non-white member to their club. Most of the English display racist attitudes while Flory, the protagonist, lacks the moral courage to promote his Indian friend's social interests. Membership in the club brings enormous prestige, and a local corrupt Burmese official plots a far-ranging intrigue to ensure his own admission by destroying the reputation of his primary competitor. Meanwhile, the arrival of a beautiful young English woman sets many heads turning and complicates the lives of nearly everyone.

James Flory, the protagonist, has a large birthmark that covers much of one side of his face. This mark causes him to be self-conscious throughout his life, and by the time he is twenty he is introverted, reserved, and sullen. He travels to Burma to work as a manager in a British timber company at twenty and there pursues a life of debauchery and dissipation for fifteen years. At thirty-five he is prematurely aged, depressed, and wants much more than he feels he will ever be able to achieve. He lives in and works nearby to Kyauktada, a small town with a European Club.

The European Club is the social, and thus political, hub of the town. The club's membership is exclusively "white", and non-white native people are not admitted as members. As the British colony of India goes through political development, the club is ordered to accept at least one non-white member. The order outrages many of the virulently racist club members, but must be complied with. The obvious choice for admission is the Indian doctor Veraswami, an intelligent and educated man who is the highest-ranking non-white official in the town. Membership in the European Club would bring enormous prestige. Thus, the local corrupt magistrate and shady underworld figure U Po Kyin desires membership for himself. He therefore plots and intrigues to destroy the reputation of Veraswami so that the single non-white membership slot will be available. Veraswami is protected against most of U Po Kyin's attacks by his close friendship with Flory.

Meanwhile, Elizabeth—a young and beautiful English woman—arrives in the town under difficult circumstances. She is eligible and looking for a mate—and Flory seems to be the most appropriate match. The two pursue a brief and marginally successful courtship while maintaining invalid assumptions about each other. Then a dashing cavalry lieutenant passes through the town on official business and, spurred by her aunt's advice, Elizabeth drops Flory to pursue the officer. After having his way with Elizabeth, the cavalry officer abruptly departs for distant locales. Elizabeth returns to Flory, and as he is willing to overlook her indiscretion, their match seems sure.

U Po Kyin is not finished, however, and he arranges to have Flory's discharged Burmese concubine make a horrible scene during church services. The concubine's wailing charges horrify Flory and scandalize the town. Elizabeth rejects Flory absolutely and he returns to his home in agony, closets himself and his dog in his bedroom, shoots his dog, and commits suicide. Without Flory's protection, Veraswami is soon ruined and U Po Kyin is indeed elected to the club where he is well-received. Elizabeth marries an older English gentleman of the town and the social situation in the area returns to normal.