Widely considered to be Narayan's best book, The Guide is the story of Raju, a scamp who ends up becoming a saint. For most of his life Raju had managed to manipulate other people's emotional needs for his own advantage, but the novel shows him going beyond himself to do a genuinely disinterested act at the cost of his life. Raju, in other words, dies so that others may live.

Raju begins his professional life as the owner of a sweetmeat stall at the railway station in a region of India that has become a popular tourist attraction. He soon discovers that he has a knack for telling people what they would like to hear and becomes a full-time guide. This profession leads him into an affair with one of his clients, Rosie. She is the wife of Marco, a man who does not really care about her aspirations to become an exponent of Indian classical dance. Raju encourages Rosie to make her dreams come true and in the process he becomes a successful impresario and the manager of a very popular dancer. But greed overwhelms him and he begins to exploit Rosie for money while belittling her artistic inclinations. Indeed, his lust for riches makes him forge her signature in a bid to acquire her family jewels. This leads to Raju's incarceration. After he has served his term, though, he finds himself in a village where an innocent villager, Velan, mistakes him for a sadhu or holy man. Velan's admiration and Raju's old instinct for utterances that satisfy the longings of his audiences make him revered throughout the village. However, drought soon threatens the region and one of his gnomic pronouncements is taken by the villagers to mean that he will fast till the rains come. This is a moment of truth for Raju: will he escape from the consequences of his decision to be satisfied with the role of a sadhu, or will he live up to the expectations he has aroused in the villagers and act like a holy man who will give up life for others? Raju chooses in the end to fast, and the last scene of the novel suggests that Raju has achieved transcendence from his body. Raju exclaims that he can feel the rains coming but does not indicate clearly whether the end of the drought is a fact or the delusion of a man who has been without food for a long time. One thing is clear: Raju had ended his life as a true guru. or spiritual guide, in demonstrating that life should be lived by more than self-interest.

Characteristically, Narayan gives a greater significance to his major theme by interlacing the narrative with references to Hindu theology. Raju's progress from excessive worldliness, his craving for wealth, and inordinate desires are precisely what the Hindu metaphysical tradition cautions against as obstacles in the path of true self-realization. Raju, according to this philosophy, must come to see the world as lila, a stage, or as maya, an illusion. He must stop playing roles and embrace his dharma, or the part assigned him by his fate, and demonstrate bhakti, or true devotion.