The children are Franny, who is self-confident and brash, John, the narrator, who is sweet and close (perhaps a bit too close) to his sister, and Frank, who is physically awkward and homosexual; Lily, a small girl who has "stopped growing", and Egg, an immature little boy with a penchant for dressing up in costumes. John and Franny are companions, seeing themselves as the most normal of the children, aware that their family is rather strange. But, as John remarks, to themselves the family's oddness seems "right as rain."
Win conceives the idea of turning an abandoned girls school into a hotel. He names it the Hotel New Hampshire and the family moves in. This becomes the first part of Irving's Dickensian-style tale. Its chief plot elements are: Franny's rape at the hands of several members of the school football team, including the quarterback, a boy named Chipper Dove with whom she is in love, and her rescue, though somewhat late, by Junior Jones, a black member of the team; the death of the family dog Sorrow and its repeated resurrection via taxidermy, the first instance of which scares the grandfather literally to death; John's sexual initiation with the hotel housekeeper, and a letter from Freud inviting the family to move to Vienna to help him (and his new "smart" bear) run his hotel there.
Travelling separately, the mother and Egg are killed in an airplane crash. The others take up life in Vienna at what is renamed the (second) Hotel New Hampshire, one floor of the which is occupied by prostitutes and another by a group of radical communists. The family discover that Freud is now blind and the "smart bear" is actually a girl in a bear suit named Susie. Plot developments in this segment are: the father's decline following the death of his wife; the family's relationships with the prostitutes and the radicals; John and Franny falling in love with each other; John's relationship with a communist who commits suicide; Franny's sexual relationships with Susie and with the "quarterback" of the radicals; Lily developing as a writer and penning the story of the family; and the radicals' plot to blow up the opera house, using Freud and the family as hostages, which Freud and Win Berry foil. The family becomes famous and, with Frank as Lily's agent, her book is published for a large amount of money. The family (with Susie the bear) returns to the States, taking up residence in a large hotel in New York.
The chief elements of the final part of the novel are: Franny and John's resolution of their love; Franny's revenge on her rapist; Franny's success as a movie actress and her marriage to Junior Jones; Lily's suicide from her despair as a writer; John's and Frank's purchase of the shut-down resort in Maine where their parents met; its function as a rape crisis center run by Susie; Susie and John finding happiness with each other, and a pregnant Franny asking them to raise her and Junior's impending baby.
The novel is evocative of the New Hampshire of Irving's childhood.