Jerry is described early on as a "young English boy," and we learn that he and his mother have traveled to their typical vacation spot, as they are described as heading to the beach "on the first morning of the holiday." When Jerry goes to the wild bay on his own, the narrator says that he sees a number of older boys who seem like men to him, and they "were of that coast." Further, when Jerry tries later to get their attention, after they've begun to swim through the tunnel in the rock, he begins to shout out all the French words that he knows: "'Bonjour! Merci! Au revoir! Monsieur, monsieur!'" All of these clues imply that the story is set in the French Riviera. This is a popular vacation spot for the English, and the locals would obviously speak French (as Jerry tries to do when he wants to detain the boys). Moreover, the narrator says that the boys are all "burned smooth dark brown," possessing the deeply tanned skin of people who live in warm climates like the south of France. However, due to Lessing's own experiences in 1940's South Africa and the story's similarities to her other African stories, it is possible that it takes place in Africa. The setting is never stated.
The story is set in an unspecified foreign country, possibly South Africa. Jerry and his mother are both English and travel to this country to vacation. Since Jerry is not in his homeland, it is a perfect setting to help reinforce the theme of fitting in. He sees the native boys and instantly longs to be one of them, despite not looking like them nor being able to pass "through the tunnel" as they do. It is this drive to fit in that fuels him and sets up the story's conflict.
Another important setting of the story is that of the beach and the rocks protruding from the ocean. These are important because the beach represents safety and the rocks represent danger. Once Jerry has set his mind to going "through the tunnel" as the native boys do, he abandons the safety of the beach and begins to face the dangers and adversity of the rock. In this way he is not only striving to fit in, but Jerry is also leaving the safety of childhood behind and entering the uncertain world of adulthood.