"Life in the Iron Mills" is a short story about Hugh Wolfe, a furnace-tender in one of Kirby & John’s iron mills. Hugh's main job is to tend large vats of molten pig-iron. The tale is told from the perspective of an anonymous, omniscient narrator. The narrator tells us that the house in which he is living was home to the Wolfe family three decades ago. The family had consisted of Hugh, his father Old Wolfe, and his cousin Deborah.

Deborah is described as a mild, plain woman. She has a slightly humped back, which makes her unattractive to most men. The narrator tells us that Deborah has just returned from a long shift at the cotton-mill and discovered that Hugh had not taken his lunch that morning.

Despite her weariness, Deborah sets out with some provisions for Hugh. At the iron-mill, Hugh eats his lunch with little fanfare. The narrator reveals that Deborah loves Hugh but knows that her love can never be requited. For his part, Hugh is a broken man. His nickname is "Molly Wolfe" because the other workers think him effeminate and ineffectual.

For his part, Hugh despises his work. His only happiness in life seems to be his art. In his spare time, Hugh sculpts beautiful figures from korl, which is a byproduct of smelted iron ore. His preferred hobby earns him mostly contempt from his male co-workers. One night, a group of illustrious-looking men visits the iron-mill. Among the men are Clark Kirby (the son of one of the mill-owners), the overseer, Dr. May (a doctor), and Mitchell (a reporter from a Northern newspaper).

Before they leave, the men stumble across one of Hugh's korl sculptures. Dr. May thinks that the female figurine resembles a working woman with the face of a "starving wolf." When asked what the figure means, Hugh tells them that “[s]he be hungry,” and does not elaborate. Before the men leave, Dr. May tells Hugh that he can make something of himself, if he chooses. Hugh asks if the doctor will help him, but the doctor replies that he has "not the means."

Later, Deborah reveals that she picked Mitchell's pocket. She gives Hugh a check for a substantial amount found in his belongings, but he is initially afraid to accept it. Eventually, after many rationalizations about his "right" to the money (since all people are deserving of a life where they can live), Hugh succumbs to temptation. His decision leads to his conviction for grand larceny, and he is sentenced to nineteen years in prison. As his accomplice, Deborah must serve three years. The narrator reveals that Hugh died in prison after slashing his wrists. Deborah was in the cell beside him, listening in horrified silence as he ended his life. Deborah eventually leaves prison after serving her term, and she begins a new life among the Quaker community.

The story ends with the narrator returning to the present. He reveals that he has the korl statue of the mill-woman hidden behind a curtain. While he is writing, he has a fanciful thought: that the outstretched arms of the korl figure are pointed to the east in welcome of the dawn.