Scott begins the novel by setting out the historical background, describing the Crusades, King Richard's capture by the Duke of Austria, and the newly found power of Prince John. Scott then describes the subjugation of the Saxons under the Norman regime. Richard had outlawed the practice of noblemen overpowering their weaker Saxon neighbours and enslaving them. With his capture, this practice is reintroduced. We are shown Wamba and Gurth as examples of how the state of the nation affects individuals. We are shown the power of language as the two discuss the origins of various words in the language: how Norman French has asserted a linguistic imperialism over Saxon. This is Scott's early play on linguistic theory:
"The whole race of Saxon princes and nobles had been extirpated or disinherited, with few or no exceptions; nor were the numbers great who possessed land in the country of their fathers, even as proprietors of the second, or of yet inferior classes. The royal policy had long been to weaken, by every means, legal or illegal, the strength of a part of the population which was justly considered as nourishing the most inveterate antipathy to their victor. All the monarchs of the Norman race had shown the most marked predilection for their Norman subjects; the laws of the chase, and many others equally unknown to the milder and more free spirit of the Saxon constitution, had been fixed upon the necks of the subjugated inhabitants, to add weight, as it were, to the feudal chains with which they were loaded. At court, and in the castles of the great nobles, where the pomp and state of a court was emulated, Norman-French was the only language employed; in courts of law, the pleadings and judgments were delivered in the same tongue. In short, French was the language of honour, of chivalry, and even of justice, while the far more manly and expressive Anglo-Saxon was abandoned to the use of rustics and hinds, who knew no other. Still, however, the necessary intercourse between the lords of the soil, and those oppressed inferior beings by whom that soil was cultivated, occasioned the gradual formation of a dialect, compounded betwixt the French and the Anglo-Saxon, in which they could render themselves mutually intelligible to each other; and from this necessity arose by degrees the structure of our present English language, in which the speech of the victors and the vanquished have been so happily blended together; and which has since been so richly improved by importations from the classical languages, and from those spoken by the southern nations of Europe."
We are introduced to two of the villains of the novel: Brian de Bois-Guilbert and Prior Aymer, who have come to see Cedric. We are then introduced indirectly to Rowena, when the two discuss her beauty, and to Ivanhoe, whose father is angry with him for going on Crusade. Cedric's home is described in all its sparse majesty, showing us the similarity between the house - solid and simple, and its inhabitant. We are more and more aware of the antipathy between the Normans and the Saxons, with Cedric trying to be civil to his Norman guests, but occasionally showing his anger at the repression of the Saxons.
We are then introduced to Isaac of York, the Jew, who fits the Semitic stereotype. He trades with the Palmer (representative of the good which still remains in the Church) who had given directions to Cedric's home earlier in the novel. The Palmer is Ivanhoe in disguise. Cedric learns that Ivanhoe has acquitted himself well in the Crusades. Brian de Bois-Guilbert tries to rob Isaac and the Palmer saves him. In exchange the Jew lends him a horse and arms for the jousting tournament at Ashby-de-la-Zouche. The tournament is described, with crowds of heroes and beautiful ladies come to participate in and watch the sports. We are shown Isaac's stunning daughter, Rebecca. Ivanhoe, in the guise of Desdichado (the Disinherited Knight), is greatly successful in the jousts, beating Brian de Bois-Guilbert and crowning Rowena Queen of Beauty and Love. The tournament is notable for its gaiety in the face of the destitute state of the English nation. On the second day of the tournament, Ivanhoe finds an ally in the Black Knight, and is again victorious, although badly wounded. Finally, bleeding, he receives the victory crown, and his identity is revealed as he passes out at the severity of his wounds.
Front-de-Boeuf has taken over the castle which Richard had originally assigned to Ivanhoe and the crowds at the tournament discuss whether Ivanhoe will reclaim it. Prince John is deeply perturbed by a message he receives: "The devil is unchained", indicating to him that Richard has escaped from the Duke of Austria. We are reintroduced to the Black Knight, who befriends and gets drunk with Friar Tuck. We then see Cedric's dream of re-establishing the primacy of the Saxons through the union of his daughter and Aethelstane, even though the two seem entirely unsuited to one another. As Cedric and his party return home, they encounter Isaac and Rebecca, accompanying an ill man. Disguised as yeoman outlaws, De Bracy and his followers capture Cedric, Isaac, Rebecca and their band, although Wamba escapes. They are taken to Front-de-Boeuf's castle. Meanwhile Wamba and Locksley raise a group to help free the prisoners, persuading the still-drunk Friar and the Black Knight to join them.
Isaac is threatened with torture unless he delivers a large sum of money to Front-de-Boeuf. Scott seems rather perversely knowledgeable about the various types of torture practised in the Dark Ages, and quotes many historical examples of implements used to extract information or services from prisoners. Rebecca has been taken up by Brian de Bois-Guilbert and De Bracy asks Rowena to marry him. Fearing that Ivanhoe, who is also being held in the castle, will be tortured if she refuses, she breaks down in tears. Her sobbing raises compassion even in the usually stern De Bracy. Simultaneously, Brian de Bois-Guilbert is trying to woo Rebecca, although with a somewhat less honourable aim. After she threatens to jump from a tower, he begins to respect her courage.
Wamba enters the castle dressed as a monk come to minister to the condemned men and swaps clothes with Cedric, who escapes and joins the Black Knight and Locksley. The troops gather outside the castle, ready to storm it. Rebecca, who is blessed with healing powers, is tending to Ivanhoe. She falls deeply in love with Ivanhoe. As the battle between Cedric and his troops and the Normans rages outside, she gives a running commentary to Ivanhoe. It is notable that Scott is uncomfortable with the tender feelings Rebecca has for Ivanhoe and quickly cuts to the battle rather than dwell on the scene. Front-de-Boeuf is wounded and dies. Ulrica, the witch, for many years subjugated by Front-de-Boeuf, sets fire to the castle. The Black Knight saves Ivanhoe from the flames and takes De Bracy captive. The prisoners are freed, except for Rebecca, who is carried off by Brian de Bois-Guilbert. Aethelstane is struck by Brian and falls down as if dead.
The group gathers at Locksley's camp and Cedric and Rowena thank the outlaw for his help. They prepare to bury Aethelstane. Prince John discovers from the recently freed De Bracy that King Richard has escaped and he hatches a plot to recapture his brother. Rebecca's healing powers are discovered by Lucas Beaumanoir, leader of the Templars, and he dissuades Bois-Guilbert from courting Rebecca as it harming his chances of promotion in court to be chasing a Jewess. Rebecca is bought to trial as a witch. Rebecca demands a champion to represent her in trial, but Bois-Guilbert tries to persuade her to run away with him.
Meanwhile, the Black Knight (revealed to be Richard in disguise) and Wamba are attacked by Fitzurse. Locksley comes to the rescue and the band is destroyed and Fitzurse exiled. Aethelstane miraculously revives to the surprise of all, who presumed he was dead. Ivanhoe is summoned to defend Rebecca. He meets Bois-Guilbert in battle and, although unseated, Bois-Guilbert dies "a victim to the violence of his own contending passions". Rowena and Ivanhoe marry and Isaac and Rebecca set off for a new life in Grenada. The ending is typical in its portrayal of life 'happily ever after':
"There was an involuntary tremor in Rebecca's voice, and a tenderness of accent, which perhaps betrayed more than she would willingly have expressed. She hastened to bid Rowena adieu.
'Farewell,' she said. 'May He, who made both Jew and Christian, shower down on you His choicest blessings! The bark that wafts us hence will be under weigh ere we can reach the port.'
She glided from the apartment, leaving Rowena surprised as if a vision had passed before her. The fair Saxon related the singular conference to her husband, on whose mind it made a deep impression. He lived long and happily with Rowena, for they were attached to each other by the bonds of early affection, and they loved each other the more, from the recollection of the obstacles which had impeded their union. Yet it would be inquiring too curiously to ask, whether the recollection of Rebecca's beauty and magnanimity did not recur to his mind more frequently than the fair descendant of Alfred might altogether have approved."