The Little Hotel is narrated by Madame Bonnard, who recounts the events that occur at her fourth-class hotel in a Swiss resort. While the eccentric activities of the Mayor of B. are her initial focus, the novel actually concerns the relationship between Lilia Trollope and Robert Wilkins, who maintain an unconvincing pose as “cousins.” Although both are unattached, Robert refuses to marry Lilia not only because he promised his mother that he would never marry, so his inheritance is at risk, but also because he simply enjoys the existing situation. Lilia, whose funds Robert insists she bring out of England, begins to suspect that Robert is primarily after her money, and she regrets having put so much of it in his name, especially since he has apparently lost interest in her. (While they dine at the hotel, he reads his newspapers and simply ignores her.)

Faced with a static and futile relationship, Lilia turns to the other people at the hotel: people, she points out, with whom she would never have chosen to associate. Mrs. Powell, a rabidly racist American who believes Lilia to be “Asiatic” (Lilia’s mother was in fact Dutch-Javanese) deliberately snubs her and determines to drive her from the hotel. Miss Chillard, a former hotel guest who has since returned to the hotel, has money but pleads poverty, thereby enabling her to exploit the generous Bonnards and to appeal to Lilia’s compassion. Mrs. Blaise, who initially serves as Lilia’s confidante and friend, turns against her and taunts her by discussing “gigolos,” an indirect allusion to Robert that violates a confidence. Only Princess Bili seems willing to help her persuade Robert to “do the right thing.”

The climax of the plot occurs at the dinner Robert and Lilia host to commemorate their first meeting twenty-seven years before. Their guests are the Blaises, the Pallintosts (they own the car that Robert wants Lilia to buy for his birthday), and Princess Bili, accompanied by her lapdog Angel, who “sings” “D’ye ken John Peel?” In the course of the party, the company becomes intoxicated, Dr. Blaise assumes command and attacks that institution of marriage, Princess Bili discusses her impending “face-lift” and marriage to a younger man, and Lilia concludes, justifiably, that it is “a very cruel age.” As Lilia and Robert dance, they become the victims of that cruelty as the Blaises reward their hospitality by calling Robert a “little rubber salesman” and Lilia his “half-caste mistress.”

After the dinner party, Lilia’s plight becomes more desperate when Princess Bili unsuccessfully approaches Robert on her behalf. Convinced that Robert will never marry her and worried that she would be “worse off” if he does, she resolves to leave him. After securing her funds from Robert, she tells him that she is leaving, but he does not believe her and further insults her by keeping her from meeting his sister Flo, who is visiting him. Mrs. Blaise subsequently insults Lilia, but the next day she inexplicably apologizes and asks her to visit in Basel, where, she says, she will be in danger from her husband. When Princess Bili abruptly departs, leaving Angel behind, Lilia is deserted. Giving her money to the miserly, opportunistic Miss Chillard, Lilia leaves Robert, and after visiting the Blaises, she returns to England never, at least to Madame Bonnard’s knowledge, to see Robert again. Mrs. Blaise dies of a suspicious heart attack and unaccountably leaves her estate to the housekeeper, Ermyntrude, if she marries Dr. Blaise. Madame Bonnard adds knowingly, “No doubt a wedding took place.”