The story opens in Baker Street, where Dr. Mortimer brings Holmes and Watson an old manuscript and a fresh death. The manuscript tells how the wicked Hugo Baskerville, generations ago, was struck down on the moor by a great black hound after a night of cruelty, leaving the family with a curse of sudden and bloody deaths. Recently Sir Charles Baskerville has been found dead near his hall, his face fixed in terror, and beside the body Mortimer has seen the prints of a gigantic hound.
Sir Henry Baskerville, the young heir raised in Canada, arrives in London to claim the estate, untroubled by family ghost stories. Strange signs gather around him at once: an anonymous warning, a stolen boot, and a bearded stranger shadowing his cab. Holmes, satisfied that the threat is real and human, sends Watson to escort Sir Henry to Devon while he claims to remain behind on other work.
On the brooding, fog-bound moor Watson finds a landscape made for dread. The great Grimpen Mire can swallow a pony or a man whole, an escaped convict is loose among the rocks, and the neighbours are watchful and strange, especially the naturalist Stapleton and his striking sister. Cries echo at night that the locals say belong to the hound. Watson sends careful reports back to London and tries to keep Sir Henry safe while the danger closes in.
The watcher Watson has been tracking on the tor turns out to be Holmes himself, who has been living secretly on the moor the whole time, an unknown factor ready to act at the decisive moment. He reveals that the danger is not legend but murder, refined and deliberate, and that Stapleton is in fact a concealed Baskerville heir who has used the family's own terror as his method. Stapleton's sister is really his wife, and a local woman has been drawn into the plot as unknowing bait.
Holmes lays a trap with Sir Henry as the lure. On a foggy night a real hound, huge and daubed with glowing phosphorus to look like the creature of the legend, bursts from the dark after the baronet, and Holmes and Watson shoot it down before it can kill. The beast is shown to be flesh and paint, the family ghost laid to rest. Fleeing through the fog, Stapleton vanishes into the Grimpen Mire and is never found, and in a closing retrospection Holmes explains the inheritance plot and how each grotesque detail had pointed, all along, to an ordinary human cause.