Northern Lights tells the story of Lyra - a wilful and disobedient young orphan who lives at Jordan College, Oxford, in a world not unlike our own. With her dæmon Pan, she enjoys a carefree life,  occasionally visited by her uncle Lord Asriel who gives her the vague idea that she doesn't belong at Jordan.

Her life is turned upside down when children start to go missing, kidnapped by the enigmatic "Gobblers", culminating in the disappearance of her best friend Roger. The arrival of the glamorous Mrs. Coulter interrupts Lyra's plans to rescue him, and she is swept away to be Mrs Coulter's "assistant". A parting gift from the Master of Jordan College – an instrument resembling a compass, called an alethiometer – keeps her busy as she struggles to understand its function. Some disturbing information about her new guardian overheard at a party leads Lyra to believe that Mrs Coulter is responsible for the disappearing children and she resolves to run away.

She is found and rescued by the Gyptians – riverboat-dwelling travellers – and she learns of their plans to travel North to rescue the missing children. She also discovers the truth about her own heritage: Lord Asriel is actually her father, and her mother is Mrs Coulter, a woman who now inspires nothing but terror in Lyra. She learns from the Gyptians that the alethiometer is a truth reader, which will answer any question she asks it. Lyra decides to accompany the Gyptians to the wild and dangerous North. 

Joined by the witch queen Serafina Pekkala, renegade armoured bear Iorek Byrnison and Texan aëronaut Lee Scoresby, Lyra discovers the truth behind the Gobblers and their wicked experiments in a Northern research station: they undertake a process called "intercision", forcibly separating children from their dæmons. This cruel operation supposedly protects children from Dust, the obsession of the civilised world but a mystery to Lyra.

Captured by hunters and taken to Bolvanger, Lyra comes face to face with her mother. She escapes again, freeing the remaining children and flying away with Roger and Iorek in Lee's balloon. They crash-land on Svalbard, home of the armoured bears, where Lyra learns that Iorek is the rightful king. She manages by trickery to win back the throne from the false king, Iofur Raknison, who had allied the bears with the Gobblers.

On Svalbard, Lyra meets her father, held prisoner on the orders of Mrs Coulter. She is terrified by his plans to build a bridge into a new world through the Northern Lights, where the barrier between the worlds is thin. From him she learns about Dust; it is an elementary particle, thought to be evidence of Original Sin. Thinking it will help him, Lyra offers Lord Asriel the alethiometer. Instead what he requires for his bridge is the huge burst of energy produced by the process of intercision; to her horror, she finds herself an unwitting assistant in Roger's death at her father's hands.

Overwhelmed by guilt, Lyra resolves to find Dust herself, reasoning that if her mother thinks it is a bad thing then the opposite must be true.  She and Pan follow Lord Asriel into the new world.