The House of the Spirits begins by introducing readers to Severo and Nivea del Valle and two of their daughters: Rosa, the oldest, and Clara, the youngest. Clara, who has been denounced by the local priest as possessed by the devil, predicts a death in the del Valle family, which is tragically fulfilled when Rosa accidentally drinks poison meant for Severe. As a result of Rosa's death, her fiance Esteban Trueba, who has been working at the mines hoping to make his fortune, tells his sister Ferula that he will instead restore their family's estate, Tres Marias.

The novel continues to tell the tale of Clara del Valle and Esteban Trueba, who eventually marry. The patriarch of the Trueba family, Esteban is a passionate, hardworking man who is determined to succeed. He is also quick to anger, frequently cruel, and intolerant of those less fortunate than himself. He allows no contradiction of his strict conservative beliefs, and thinks he is justified in ruling his plantation with an iron hand because he has improved the peasants' standard of living. "It would be lovely if we were all created equal, but the fact is we're not," he says, arguing that his workers would be lost without him. He takes the same attitude toward women, wanting to possess Clara "absolutely, down to her last thought," taking advantage of plantation women, and declaring that a woman's duty is "motherhood and the home." His greatest failing is his inability to control his temper, which leads him to hurt those he loves the most. To his regret he always "gets carried away with his punishment," as when he whips Blanca after discovering her with Pedro Tercero or when he beats Clara when she defends her daughter.

Having come from a noted but impoverished household, Esteban is ambitious for both power and money. He is successful in achieving both, becoming a wealthy patron and senator. He is less successful in his personal life, however. His relationships with his children "only worsened with time," and after Clara's death, he notes that he had "only two friends" to try to cheer him up. Ferula's curse seems to come true and he shrinks with time. It would be hard to feel sympathy for Esteban, except for two things: the first-person narration that shows how deeply he both loves and suffers; and the tolerance and understanding he finds in his old age. The consequences of the coup teach him that his judgment is not perfect, and he is no longer so adamant in having his way. His granddaughter Alba also mellows his demeanor, as he "transfers] all his finest sentiments to Alba," treating her with tolerance and indulgence. He makes no protests over her relationship with Miguel, an orphaned revolutionary, and eventually mends his differences with Pedro Tercero and his daughter Blanca as well. Thus a man who lived with so much passion and violence dies a peaceful death, "without pain or anguish, more lucid than ever and happy, conscious, and serene."

The Truebas have three children, a daughter named Blanca and twin boys named Jaime and Nicolas. Blanca begins an affair with her childhood playmate Pedro Tercero Garcia, becoming pregnant with a daughter named Alba. Pedro Tercero ("the Third") is the third generation of Garcias to work on the Trueba estate. Unlike his father and grandfather before him, Pedro Tercero is willing to defy Esteban Trueba and fight against the injustice of the social order. Despite his father's beatings and Trueba's warnings, Pedro Tercero continues to discuss "revolutionary" ideas of justice he learns from leftist leaning teachers, priests, and union members. But while he believes he must struggle against injustice, he also "knew his place in the world"—one that will never allow him to have a legitimate relationship with the daughter of Esteban Trueba.

When Blanca gets pregnant, her father forces her to marry the Count Jean de Satigny in order to legitimize the birth of her daughter. Although Blanca truly loves Pedro Tercero, she refuses to run away with him, not wishing to give up her social position or face the ridicule of his working-class friends. For romantic Blanca, her "poetic fantasies" are better than discovering that "the grandiose love that had withstood so many tests would not be able to withstand the most dreadful test of all: living together." She eventually leaves the Count, and continues to live on her father's estate with her daughter, Alba.

By this time, Pedro Tercero, even though he is "disillusioned with political organizations" and "had no ambition for either money or power," is drawn into an administrative post in the government. The pressures of the job lead him to give Blanca a final ultimatum: marry him or never see him again. When she refuses again, they remain apart for two years, until she asks his help in rescuing her father from the revolutionary tenants who have taken him hostage. Esteban Trueba returns the favor after the coup makes Pedro Tercero a fugitive, arranging for him to escape the country with Blanca. The two live in exile in Canada, where finally "they both felt completely fulfilled in the peace of satisfied love." The repression after the coup finally forces Blanca to make a decision: she hides Pedro Tercero from the police and then enlists her father's help in escaping the country. Only then can the two men overcome the hatred that had poisoned their lives until then, and Blanca ends up a successful artist in Canada, living "completely fulfilled in the peace of satisfied love."

Blanca's brothers, Jaime and Nicolas, grow up disagreeing with their father's conservative politics. Eventually, Alba, Jaime, and Nicolas join the communist political cause, helping that party's candidate to become president. Pedro Tercero joins the government, after which Blanca rejects his final marriage proposal. Esteban Trueba is helping to sabotage the economy, but the younger Truebas work for the survival of the new government. After the peasants of Tres Marias take Esteban prisoner, Blanca and Alba ask Pedro Tercero to rescue him, and he agrees. During this visit, Pedro Tercero's love for Blanca is rekindled, while Alba learns that Pedro Tercero is her father. After Pedro Tercero rescues Esteban, they discover their personal hatred is extinguished, but hatred in the rest of the country is on the rise. Jaime is shot and killed during a coup which Esteban celebrates; when Esteban offers his services to the new regime he learns of his son's death and the destruction of the democratic system. Esteban is disgusted with himself after he orders the peasant village at Tres Marias destroyed. After the funeral of the Poet, which becomes the symbolic burial of freedom, Esteban admits that he has made a mistake, enabling Blanca and Pedro Tercero to flee the country and asking her forgiveness, which she grants by telling him she loves him.

Ironically, Pedro Tercero and Blanca's daughter, Alba, is the only focus for Esteban's love and tenderness. Since he has already destroyed his relationships with the rest of the family, he agrees that she should have a decent education as she is "too plain to attract a well-to-do husband." Alba attends university and despite her grandfather's warnings to avoid love, falls instantly for Miguel, a brash, young law student. She follows him to student protests but manages to keep her activities— including a love nest in the basement— secret from her grandfather. Alba has the same generous spirit as her grandmother, for she smuggles Blanca's hoarded food supplies out to the poor. She also gives many of the weapons hidden by her grandfather to Miguel's guerilla movement. After the coup, she helps victims of political persecution find asylum and works with local priests to help feed the poor. "She realized that they had returned to the old days when her Grandmother Clara went to the Misericordia District to replace justice with charity." Her efforts convince Esteban that something has gone wrong in the country, especially after the secret police seize her in the middle of the night. She is tortured, but a vision of Clara convinces her that survival should be her goal. With the aid of Ana Diaz and other women in the prison, Alba recovers and begins to write. Upon her return home, she recreates the family story at her grandfather's urging, so "you'll be able to take your roots with you if you ever have to leave." The act of writing, she discovers, will help her "reclaim the past and overcome terrors of my own," and so she begins with the first lines of her grandmother's diary: Barrabas came to us by sea.... Meanwhile, on the outside, Esteban gets Transito Soto to help him secure Alba's release. After the two restore the house and write their story, Esteban dies in Alba's arms. Alba is pregnant, possibly as a result of having been raped, and she realizes that her grandfather's evil created the evil of Esteban Garcia and vows to break that terrible chain. Alba is left, at the end of the novel, waiting for Miguel's return and her daughter's birth.