The Iron Heel begins in the year 2600 A.D., when scholar Anthony Meredith discovers a previously unknown manuscript written centuries before by Avis Everhard, the wife and comrade-in-arms of revolutionary leader Ernest Everhard. Both are figures of historic import and revered as martyrs, having begun a bitter struggle on behalf of mankind in the early twentieth century that has only recently ended in victory.

The manuscript recounts the early stages of the relationship between Ernest, a common laborer, and Avis, the daughter of a Stanford professor, as he helps her to understand the brutal reality of the fate of the American working class by witnessing it first hand. He shows her a country beset by class division, inequality, and every form of the exploitation of labor. The force behind this oppression is the corporate conglomerate known as the Oligarchy or "Iron Heel," an organization whose goal is the creation of a fascist fusion of business and government. Her eyes opened, Avis joins Ernest as lover and political ally in what will become a lifelong war against the Iron Heel.

The pair become involved in socialist politics, becoming members of a party formed from the coalition of the urban labor unions and and the rural agrarian movement, with Ernest eventually running for the Senate under its banner. Although he is one of a wave of socialists swept into office who begin to believe their goals finally within reach, the Oligarchy fights back. Its agent provocateurs stage false flag operations which lead to the suspension of the Constitution. As the Oligarchy consolidates its stranglehold on the populace, forming an army known as the Mercenaries from former state militias, and developing a private, highly-paid group of scab workers in strategic industries such as steel and the railroads, it is they who have finally achieved their goal of creating a fascist state.

After Ernest is falsely accused of setting off a bomb in the Senate building, while making a speech, he is tried by an Oligarchic kangaroo court and sentenced to life in prison. Avis, her life now in danger, is forced to go underground. Many months pass before Ernest is able to escape from prison with the help of political comrades, and make his way to rejoin her, as the couple resume the struggle from the fringes of society.

Meanwhile, the greatest part of the working classes outside of the chosen caste, have been forced into lives of virtual serfdom, enslaved not to land but by machines. They are forced to construct the glittering cities of Ardis and Asgard, where they are housed in squalid barracks sequestered in ghettoes.

The novel ends on a grim note, with the revolutionary pair now forced to become terrorists in their war against an Oligarchy ruling over a horrific, dystopian America, unaware that their vision of social justice will come to prevail in a distant future.