Professor William Waterman Sherman: The protagonist of the story, who decided to travel the world by balloon upon retirement in 1883, became world famous when he was discovered among the wreckage of 20 balloons in the Atlantic Ocean, following the well-known eruption of the volcanic island of Krakatoa. He tells his story to the Western American Explorer’s Club and is adamant that only this institution should be the first to hear of it. His discovery of the amazing utopian island of Krakatoa and its subsequent destruction by its volcano is verified by the diamond cuff-links he maintains on his person, given to him from the diamond mines on Krakatoa before it was destroyed.

The families of Krakatoa: There are 20 families on the island, originally from America, and each is assigned a letter of the alphabet. The families each consist of a father, mother, son, and daughter. Each family hosts the entire island for a meal of a different international cuisine. As explained by Mr. F:

“The A.’s run an American restaurant and serve only real American cooking. You are now eating at the B.’s. This is a British chop house. The C.’s run a Chinese restaurant. The D.’s run a Dutch restaurant, the E.’s an Egyptian restaurant; you can run through the alphabet up to T. The T.’s run a Turkish coffee house.”

“And you, Mr. F., run a French restaurant?”

“It’s as easy as that,” said Mr. F.

Mr. F.: This gentleman is one of the 20 patriarchs of the island and lives with his wife, his son F-1, and his daughter F-2, in their French-styled home. He is Sherman’s guide throughout the island.

Mr. M.: The island’s “founder/discoverer.” Mr. M. was shipwrecked on Krakatoa, discovered the diamond mines, built a raft, and made his way back to civilization, where he sold several diamonds in order to finance his utopian vision for Krakatoa. He is the one who gathers the 20 families and organizes their trip.

The main character in the book The Twenty-One Balloons is Professor William Waterman Sherman, a retired math teacher. He leaves San Francisco and intends to fly over the Pacific, but three weeks later, he is rescued by Captain John Simon on the Atlantic with 21 deflated balloons. He tells the story of what happened to him to members of the public and of the Western American Explorers' Club in San Francisco, of which he is an honorary member.

Professor Sherman landed on the volcanic island of Krakatoa, where he was found by "Mr. F." He discovered twenty families living off the proceeds of a diamond mine. In the utopian society that they have arranged, each family's name starts with a different letter of the alphabet, starting with "A." In the A family are Mr. A., Mrs. A., and their son (A-1) and daughter (A-2), and each family is named with the same system. In their Restaurant Government,  they each make food that starts with that letter. For example, the "A" family makes American food. The last family is "T," who run a Turkish restaurant. They have divided the calendar into twenty-day months, and everyone eats at each others' restaurants on one day of the month. They also have houses in which the decorations start with their letter of the alphabet. For example, Mr. F. lives in a house that has a French style of decoration. The island was discovered by Mr. M., who brought a few diamonds to San Francisco to sell and who recruited the other families. Each year, they sell a diamond to pay for their supplies. Eventually, the volcano explodes, and they escape on the balloons with Professor Sherman. They decide to resettle in different places, such as India and Belgium, while Sherman is rescued in the Atlantic. 

The main character of this story is a teacher named Professor William Sherman who takes a balloon trip and lands on a Pacific island called Krakatoa.  The island is home to 20 families who share the wealth of a diamond mine and must keep their treasure a secret.

The 20 families, who live on the island have alphabet names, Family A, etc. The Professor is the only real character in the book.