Ralph Nickleby receives a letter informing him of his brother's death. It is incumbent upon him to ensure the wife and children of his deceased sibling are provided for, and this is a duty he undertakes unwillingly. Visiting the bereaved family, he suggests they set about finding suitable work for the children, Nicholas and Kate.

Ralph finds a vacant position for Nicholas as an assistant schoolmaster at Dotheboys Hall, a notoriously brutal school run by the violent and avaricious Wackford Squeers. An interview is arranged and Nicholas is offered the job. Soon afterwards Kate is secured a position as a seamstress in a London fashion house.

Nicholas is appalled to find how badly the boys are treated at the school, especially one boy, Smike. He is beaten and ill-treated by Squeers and his family. Eventually Nicholas can stand it no longer and intervenes as Squeers is about to cane the boy. Nicholas takes the cane and beats the schoolmaster, leaving him unconscious. Nicholas and Smike flee the school and begin a series of adventures together that culminate ni them joining the Crummles theatrical family. As he and Smike begin their first attempts at acting, word reaches them that Nicholas's mother and sister are in trouble.

Nicholas returns to discover that Ralph has been offering his sister as a mistress to various wealthy acquaintances, and he attacks Sir Mulberry Hawk for speaking disrespectfully of Kate. Nicholas must find work and lodgings for the Nickleby family, which he does courtesy of an encounter with the good-humoured Cheeryble brothers, who offer him a place in their business.

Nicholas then meets Madeline Bray, the daughter of a man imprisoned for being unable to repay debts to Ralph Nickleby. It appears that Ralph has conspired to annul the debts in return for Madeline becoming his wife. Nicholas thwarts Ralph's plans, convincing Madeline of the mistake she is about to make. Ralph plots with Squeers to take revenge on Nicholas by harming Smike. Newman Noggs manages to help thwart this plan but, unfortunately, Smike dies of consumption in Nicholas's arms. Ralph is confronted with ruin and the exposure of his villainous acts, and is finally shattered to discover that Smike was his own son. He commits suicide. Madeleine and Nicholas marry, and Kate Nickleby marries Frank, the Cheerybles' nephew.