Anne Shirley, a young orphan from the fictional community of Bolingbroke, Nova Scotia (based upon the real community of New London, Prince Edward Island), is sent to live with Marilla and Matthew Cuthbert, siblings in their fifties and sixties, after a childhood spent in strangers' homes and orphanages. Marilla and Matthew had originally decided to adopt a boy from the orphanage to help Matthew run their farm at Green Gables, which is set in the fictional town of Avonlea (based on Cavendish, Prince Edward Island). Through a misunderstanding, the orphanage sends Anne instead.

Anne is fanciful, imaginative, eager to please, and dramatic. However, she is defensive about her appearance, despising her red hair, freckles and pale, thin frame, but liking her nose. She is talkative, especially when it comes to describing her fantasies and dreams. At first, stern Marilla says Anne must return to the orphanage, but after much observation and consideration, along with kind, quiet Matthew's encouragement, Marilla decides to let her stay.

Anne takes much joy in life and adapts quickly, thriving in the close-knit farming village. Her imagination and talkativeness soon brighten up Green Gables.

The book recounts Anne's struggles and joys in settling in to Green Gables (the first real home she's ever known): the country school where she quickly excels in her studies; her friendship with Diana Barry, the girl living next door (her best or "bosom friend" as Anne fondly calls her); her budding literary ambitions; and her rivalry with her classmate Gilbert Blythe, who teases her about her red hair. For that, he earns her instant hatred, although he apologizes several times. Although, as time passes, Anne realizes she no longer hates Gilbert, but her pride and stubbornness keep her from speaking to him.

The book also follows Anne's adventures in Avonlea. Episodes include play-time with her friends Diana, calm, placid Jane Andrews, and beautiful, boy-crazy Ruby Gillis. She has run-ins with the unpleasant Pye sisters, Gertie and Josie, and frequent domestic "scrapes" such as dyeing her hair green while intending to dye it black, and accidentally getting Diana drunk by giving her what she thinks is raspberry cordial but which turns out to be currant wine.

At sixteen, Anne goes to Queen's Academy to earn a teaching license, along with Gilbert, Ruby, Josie, Jane, and several other students, excluding Diana, much to Anne's dismay. She obtains her license in one year instead of the usual two and wins the Avery Scholarship awarded to the top student in English. This scholarship would allow her to pursue a Bachelor of Arts (B.A.) degree at the fictional Redmond College (based on the real Dalhousie University) on the mainland in Nova Scotia.

Near the end of the book, however, tragedy strikes when Matthew dies of a heart attack after learning that all of his and Marilla's money has been lost in a bank failure. Out of devotion to Marilla and Green Gables, Anne gives up the scholarship to stay at home and help Marilla, whose eyesight is failing. She plans to teach at the Carmody school, the nearest school available, and return to Green Gables on weekends. In an act of friendship, Gilbert Blythe gives up his teaching position at the Avonlea School to work at the White Sands School instead, knowing that Anne wants to stay close to Marilla after Matthew's death. After this kind act, Anne and Gilbert's friendship is cemented, and Anne looks forward to what life will bring next.