The Sign of the Beaver relates how Matt Hallowell matures from a child to an adult in the course of several weeks that he lives alone in the wilderness of Maine. Early in the novel, Matt supplies a vagrant trapper named Ben with food and lodgings only to have his gun stolen by the blustery old trapper. Soon after, a bear raids the Hallowell cabin, leaving Matt with almost no food to sustain him while he waits for his family to return. Deprived of his provisions, Matt must rely on his own resources to survive. An early attempt to fend for himself fails miserably when he tries to retrieve honey from a beehive and ends up with multiple bee stings and a sprained ankle. Two Native Americans—Saknis and his thirteen-year-old grandson Attean— rescue the injured Matt, and Matt agrees to teach Attean to read English in exchange for their help.

Attean plays a vital role not only in Matt's survival but also in his maturation, though the reading lessons that Matt devises, first using a copy of Daniel Defoe's Robinson Crusoe and then the Bible, fail. Robinson Crusoe proves to be a particularly disastrous choice when Attean becomes offended by the assumptions of white supremacy that underlie the portrayal of Crusoe's relationship with Friday, a Native American from South America who becomes Crusoe's faithful servant. Matt is shocked to realize that a novel that he has always regarded as a harmless adventure story contains such assumptions. The failure of the reading lessons—which Saknis hopes will enable Attean to understand treaties drawn up by settlers and thus check the white encroachment on his people's hunting grounds—reflects the historical reality that most attempts at fair negotiations between the whites and the Native Americans eventually failed.

The friendship between Attean and Matt develops slowly and is an idealized version of relationships between Native Americans and settlers. Neither of the boys understands the culture of the other whatsoever when they first meet. Attean is generally aloof and mistrustful, an attitude that Matt understands when Attean tells him that white men killed his mother in order to make money from selling her scalp. Attean's father has never returned from his mission to avenge her death. When Attean tells Matt about his mother's scalping, Matt argues that the Native Americans treat the settlers similarly, but is at a loss when Attean points out that the whites are destroying Native American hunting grounds.

Matt makes a tremendous effort to impress Attean, who scorns the white boy's ineptitude in the wilderness. But Matt gradually learns much more about the wilderness from Attean than Attean learns from Matt about reading. Matt begins to earn Attean's respect when Matt helps to kill a bear that attacks the boys. Attean acknowledges Matt's progress when he leaves Matt to find his way back to the Hallowell cabin from the Native American village on his own, a compliment that is not lost on Matt. Attean pays Matt an even greater compliment later by inviting him to accompany the men of his village on a hunt and calling him his "white brother," but it is at this point that Matt decides that he must remain loyal to his own heritage. Matt declines the invitation, choosing to stay at his cabin in case his family, several weeks late already, arrives.

The novel shows that it can be very difficult to understand another culture and that tragic consequences can ensue if that difficulty is not overcome. Matt's mistaken assumption that the paint Attean dons for the bear feast is war paint points out how easy it is to misinterpret the intentions of a culture that one is not familiar with. The murder of Attean's mother and the fate of his fellow villagers— who are all eventually forced to move further west because of white encroachment on their hunting grounds—suggests the tragedy that can result from ignorance about other cultures.