On a fairground in New England in May 1873 there was a "carousel", a popular attraction, particularly with the girls as the 'barker' for the carousel was a very handsome young man, one Billy Bigelow. His employer was Mrs. Mullin, a widow, whose obvious intention was to install Billy as a substitute for the dear departed husband.

The story opens with Carrie Pipperidge and her friend Julie Jordan arriving at the fair. Julie and Billy fall in love at first sight. Mrs. Mullin interferes but Billy defies her and is discharged. Carrie reminds Julie that unless they return to the mill where they both work, they will lose their jobs. Julie ignores this advice, stays behind, loses her job and marries Billy. They go to live with Nettie Fowler, a kindly relative of Julie's. The marriage is not a success and Billy, still jobless, falls into the clutches of Jigger Craigin, a waterfront crook who plans to rob the mill owner, Mr. Bascombe, of a large sum of money. Billy learns he is about to become a father and, needing the money, agrees to help Jigger. The robbery misfires as Mr. Bascombe is armed.Jigger escapes, but Billy is held at gunpoint and, to avoid arrest, he tries to escape and falls on his knife. Julie arrives just in time to see him die.

He learns that much time has passed and that his child, a girl, is now fifteen years old. He is given a glimpse of her and learns that she is shunned by all the other children because of the memory of her father. Billy, at last contrite, gets back to earth for one day.

On Graduation Day at the school, the local Doctor, in his speech, gives good advice on how to be brave in adversity and Billy, invisibly present near his daughter, counsels her to follow this advice.

Billy stays long enough to see his little girl at last accepted into the fellowship of her colleagues, and he and his "heavenly friend" walk off to the other world, Billy at last having earned his right to enter by the Front Entrance.