When Rutherford finds Hugh Conway, a former schoolmate, suffering from fatigue and amnesia in a mission hospital, Conway relates the following weird and almost unbelievable story concerning his disappearance many months before. Conway is working at the British consulate in the city of Baskul when trouble breaks out there in May, 1931, and he is considered a hero because of the efficiency and coolness he displays while all the area’s white civilians are being evacuated. When it is his turn to leave, he boards a plane in the company of Miss Roberta Brinklow, a missionary; Henry Barnard, an American; and Captain Charles Mallinson, another member of the consulate. The plane is a special high-altitude cabin aircraft provided by the maharajah of Chandapore. Conway is thirty-seven years old and has been in the consular service for ten years. His work has not been spectacular, and he is expecting to rest in England before being assigned to another undistinguished post.

After the plane has been in the air about two hours, Mallinson notices that the pilot is the wrong man and that they are not headed toward Peshawar, the first scheduled stop. Conway is undisturbed until he realizes they are flying over strange mountain ranges. When the pilot lands and armed tribesmen refuel the plane before it takes off again, Conway begins to agree with Mallinson and Barnard, who think they have been kidnapped and will be held for ransom.

When Conway tries to question the pilot, the man points a revolver at him. A little after midnight, the pilot lands again, this time narrowly averting a crash. The passengers climb out of the plane and find the pilot badly injured. Conway believes that they are high on the Tibetan plateau, far beyond the western range of the Himalaya Mountains. The air is bitterly cold, with no signs of human habitation in this region of sheer-walled mountains. The pilot dies before morning, murmuring something about a lamasery called Shangri-La. As the airplane’s passengers start out in search of the lamasery, they see a group of men coming toward them.

When the men reach them, one introduces himself in perfect English; he is a Chinese man named Chang. The men lead Conway and the others to the lamasery of Shangri-La, where they arrive that evening. There they find central heat, indoor plumbing, and many other luxuries more commonly found in the West. They are given fine rooms and excellent food. They learn that a High Lama lives at the lamasery, and that they will not be privileged to meet him. Although Chang tells them that porters will arrive in a few weeks to lead them back to the outside world, Conway has the strange feeling that their arrival in Shangri-La has not been an accident and that they are not destined to leave soon.

In time, Chang tells them that Conway is to be honored by an interview with the High Lama. Mallinson begs Conway to force the High Lama to provide guides for them, for Mallinson has learned that Barnard is wanted for fraud and embezzlement in the United States and is anxious to turn Barnard over to the British authorities. Conway, however, does not discuss their departure with the High Lama, who is a very intelligent and very old man. Instead, he listens to the High Lama’s remarkable story of Father Perrault, a Capuchin friar who became lost in the mountains in 1734, when he was fifty-three years old. Father Perrault found sanctuary in a lamasery and stayed there after adopting the Buddhist faith. In 1789, the old man lay dying, but the miraculous power of some drugs he had perfected, coupled with the marvelous air on the plateau, prolonged his life. Later, tribesmen from the valley helped him build the lamasery of Shangri-La, where he lived the life of a scholar. In 1804, another European came to the lamasery; then others came from Europe and from Asia. No guest has ever been allowed to leave.

Conway learns then that the hijacking of their plane had been deliberate. More important, he learns that the High Lama is Father Perrault and that he is 250 years old. The old man tells Conway that all who live at Shangri-La have the secret of long life. He sent the pilot to bring back new people because he believes a war is coming that will destroy all known civilization; Shangri-La will then be the nucleus of a new world. The High Lama’s picture of life in the lamasery pleases Conway, and he is content to stay.

Conway knows that the others will find it hard to accept the news, and he does not tell them that they can never leave. Mallinson continues to talk of the coming of the porters, but Barnard and Miss Brinklow announce that they intend to pass up the first opportunity to leave Shangri-La and wait for a later chance. Barnard faces jail if he returns to civilization, and Miss Brinklow thinks that she should not miss the opportunity to convert the lamas and the tribesmen in the valley to Christianity. The weeks pass pleasantly for Conway. He meets a Frenchman called Briac who had been a pupil of the early nineteenth century pianist and composer Frédéric Chopin, and he also meets Lo-Tsen, a Chinese woman who seems quite young but, as Chang tells him, is actually sixty-five years old.

Conway has more discussions with the High Lama, and at one of their meetings the old man tells Conway that he knows he is going to die at last, and he wants Conway to take his place as ruler of the lamasery and the valley. He counsels Conway to act wisely, so that all culture will not be lost after war has destroyed Western civilization. While he is explaining these matters, the High Lama lies back in his chair, and Conway knows that he is dead.

Conway wanders out into the garden, too moved to talk to anyone. His contemplation is interrupted by Mallinson, who tells him that the porters have arrived. Although Barnard and Miss Brinklow will not leave, Mallinson has paid the porters to wait for him and Conway. Mallinson says that Lo-Tsen is going with them, that he has made love to her and that she wants to stay with him. Conway tries to tell Mallinson that Lo-Tsen is really an old woman who will die if she leaves the valley, but Mallinson refuses to listen. At first, Conway also refuses to leave Shangri-La, but after Mallinson and Lo-Tsen start out and then came back because they are afraid to go on alone, Conway feels responsible for them as well and leaves the lamasery with them. As he goes, he feels that he is fleeing from the place where he would have been happy for the rest of his life.

Rutherford’s retelling of Conway’s story ends at this point, for Conway has slipped away and disappeared. Later, Rutherford meets a doctor who tells him that Conway had been brought to the mission hospital by a woman—a bent, withered, old Chinese woman. Perhaps, then, Conway’s story is true. Convinced that Conway has gone in search of the hidden lamasery, Rutherford hopes that Conway is successful in reaching Shangri-La.