When friends Eustace Scrubb and Jill Pole stumble into Aslan's Country when trying to escape bullies at their school, Jill is given a quest by Aslan the Talking Lion. They must save Prince Rilian, son of King Caspian, from the Evil Green Lady. Rilian disappeared 10 years earlier after weeks of searching the woods near Cair Paravel for the serpent who had killed his royal mother, the Queen. However, their task is complicated by the fact that they both got separated on their arrival into Aslan's Country, when Eustace fell from a cliff and was blown to Narnia by Aslan, who soon blows Jill in the same direction. A great ship has just set sail from Cair Paravel, and a talking Owl (Glimfeather) appears and informs Eustace and Jill that the King of Narnia has just departed on his ship. Eustace is horrified to realise that the elderly man boarding the ship was indeed Caspian, who is now decades rather than years older than Eustace himself - as 50 years have passed in Narnia while less than a year has passed on Earth.

Caspian, now an elderly man, has just set sail to revisit the places of his youth (where he had voyaged with Edmund, Lucy and Eustace, 50 years earlier), but many believe that he had set out to seek Aslan to find out who should be the next King of Narnia, as he has no other children and fears he will never see Rilian again. They meet the very elderly dwarf Trumpkin, now Lord Regent of Narnia, who has taken over the rule of Narnia while Caspian is at sea. He admits Eustace and Jill to Cair Paravel, and that evening Glimfeather returns to the castle to take Jill to the Parliament of Owls.

Glimfeather's friend in the Parliament of Owls tells the children the story of how Prince Rilian was lost 10 years ago, and the children gather from the story that the serpent who killed the Queen and the mysterious lady that Rilian had pointed out to Lord Drinian on his return to the forest were probably one and the same. Glimfeather and his friend then take the children to a friend of theirs who will act as a guide on their quest to track down the lost prince.

To help them on their quest they meet the gloomy but loyal Marshwiggle Puddleglum. Leaving Narnia, they journey deep into the desolate northern lands, where they encounter cold, hunger and hardship, and encounter giants as well as a dragon, who flies away after Eustace (who was briefly a dragon himself once) approaches him and encourages him to go elsewhere.

The children soon begin to bicker among themselves, forgetting the Four Signs Aslan has given them for guidance along the way.

One frosty morning, the three travelers encounter a beautiful Green Lady, accompanied by a silent Black Knight. Not realizing that the charming lady is actually the same deadly serpent that enslaved the Prince and killed his mother, the children confide in her eagerly. Sensing their hunger and exhaustion, the sly witch sends them to the Gentle Giants of Harfang.

The giants are kind to the children at first, but in reality, they plan to fatten the travelers up with rich foods and then eat them for the Autumn Feast. Discovering the truth after reading a cookery book, Jill and her friends escape from Harfang and go underground, where they realise they have entered the underworld ruled by the Green Lady.

The Warden of the Underworld and his army of gnomes lead the children and Puddleglum to a grand apartment in the Underworld, where they are welcomed by a mysterious masked man who claims to be the Queen's second in command, and will lead her army of gnomes to conquer the "overworld". Two gnomes later appear and capture him in the Silver Chair, but he soon persuades the travelers to set him free "in the name of Aslan". He then smashes the Silver Chair to pieces with his sword, and reveals that he is indeed Rilian, heir to the Narnian throne. He recognises Eustace's name from his father's stories, and is keen to find out whether his father is still alive. Puddleglum reveals that Caspian is still living, but is now old and frail, implying that he may not be alive for much longer.

The Green Lady then arrives and is horrified to find the Silver Chair destroyed, wrongly believing that one of the three travelers has destroyed it.

Rilian then confesses that he destroyed the Silver Chair, and the Witch then attempts to put all three travelers under the same spell, blotting out any memories of Narnia or Earth, but her magic fails to work on Puddleglum. His defiance enrages the witch, especially after he extinguishes the fire which was placing the children under the spell. She finally loses her temper and takes on her true form as a hideous green snake. Once she is no longer in the distracting shape of a woman, Prince Rilian recognizes who she truly is and kills her. They then make their escape to the overworld, where they are rescued through a hole in the hillside by the Narnians.

Rilian then heads off to Cair Paravel while the children and Puddleglum stay overnight with the Narnians. The next day, Glenstorm the centaur takes the children to Cair Paravel to witness the return of King Caspian. However, Caspian is fading fast by the time he returns to Cair Paravel, and dies shortly after meeting Rilian, who is then proclaimed King of Narnia by Trumpkin. Aslan then appears and congratulates the children on succeeding with the task he had assigned them, and they then return to Aslan's Country with him.

The children find themselves back at the stream in Narnia where Jill had first seen Aslan, and the dead King Caspian is lying in the stream. On Aslan's orders, Eustace removes a large thorn from a nearby thicket and drives it into Aslan's paw, creating a stream of blood that revives Caspian and restores him as a young boy, who is thrilled to meet Eustace again. Aslan then orders the two children and Caspian to confront the bullies at Jill's school, breaking down a wall that reveals the three warriors with their swords, causing the crowd of bullies to head back to the school in terror. The children then say their goodbyes to Caspian and Aslan.