Sixteen-year-old Simon Lewis is having a difficult time adjusting to his new life as a vampire, especially since it became known that he's a "Daylighter," able to be out during the day without fear of being killed by sunlight. Several attempts are made on his life, but the "Mark of Cain" that his best friend, Clary, gave him means that anyone who tries to kill him will have a horrible death. His daylighter status and Clary's mark make Simon a wanted commodity by many in the supernatural world. Camille, a female vampire who until recently led the Manhattan vampire clan, wants Simon to help her return to power. She offers him knowledge and power in return and gives him five days to make up his mind.
Shadowhunters are descendants of human beings who drank the blood of the angel Raziel. Jace, a 17-year-old Shadowhunter, is also having problems. Jace is madly in love with Clary, and she with him. But Jace has been plagued for weeks by nightmares in which, during passionate moments with Clary, he kills her. He keeps his nightmares to himself, but he can't eat or sleep. Clary begins to worry that Jace doesn't love her.
Simon's music band brings in a new lead singer named Kyle. When Simon moves out of his house — after his mother discovers he's a vampire — Kyle lets Simon share his apartment.
Clary offers to help in the investigation of the murders of three Shadowhunters. Her mother's fiancé, Luke (a werewolf), accompanies her to the Shadowhunter morgue where one of the bodies is being held. Clary carves a new rune into the corpse's chest, and the Shadowhunter is brought back from the dead. He chokes out the name of his killer, Camille, before Luke pours acid on the rune so the man can return to the dead. Luke warns Clary that she needs to learn more about her gift before she tries something like that again.
Jace has learned that someone is trying to kill Simon and decides to act as his bodyguard. Jace identifies Kyle as a werewolf. Kyle admits it's true and confesses that he's a member of the Wolf Guardians. They track down newly created werewolves and vampires who haven't become members of packs or clans in order to help them make the transition into their new lives. They keep the new Downworlders from becoming too violent or suicidal. The Wolf Guardians heard about Simon's solitary lifestyle and sent Kyle to keep an eye on him. Both Jace and Kyle agree to form an uneasy truce in order to protect Simon. Later that night, Simon sneaks away from his bodyguards to meet with Luke. The werewolf tells him that Camille is involved with the Shadowhunter murders, and Simon admits the offer she made to him. Luke promises to get help from the Shadowhunters.
Clary overhears a phone conversation between Jocelyn (her mother) and a nurse at a hospital where a baby has been abandoned. Jocelyn made inquiries about the baby, and the nurse called to tell her that the child died after a priest tried to baptize it. Clary insists on going to the hospital with her mother to view the baby. From its appearance, Jocelyn knows that someone had given demon blood to the child's mother in an attempt to create a demonic version of a Shadowhunter.
Kyle and Jace decide to let Simon act as bait in order to draw out the person or people who have been trying to kill him. Simon's band will perform in the city, and Jace will patrol the audience looking for Simon's enemies while Kyle acts as backup. The night turns into a disaster. Clary shows up unexpectedly, and she and Jace argue, then make out in an alley outside the venue. Jace runs away, fearing he'll hurt Clary. Simon, who used to be a vegetarian before becoming a vampire, has not been vigilant in drinking animal blood to keep up his strength. He loses control when a young fan asks for a picture after the show, and he drinks her blood. Kyle manages to stop him from killing the girl. Later, when Kyle approaches Simon to give him a ride home, they run into Maia, one of the girls Simon is dating, who also happens to be a werewolf. In fact, it was Kyle that turned her into one, and she has never forgiven him. When she sees Kyle, she attacks him.
Clary discovers a clue as to where the demon baby in the hospital may have come from. She texts her friend Isabelle to meet her at the Church of Talto. Meanwhile, Simon receives a note saying that someone has his girlfriend and will kill her if he doesn't go to the same address. Simon calls Clary, Isabelle and Maia — all girls he has had relationships with — and none of them are being held hostage. He later discovers that the young girl he'd attacked was mistaken for his girlfriend and killed. Clary arrives at the Church of Talto only to discover it is being used for black magic, specifically a ritual to create demon babies. She is attacked by a demon, but Isabelle arrives to save her.
Jace runs to Clary's bedside as she recovers from burns she received from the demon. The two begin to passionately kiss but stop when Jace's nightmares become reality, and he cuts her arm with a knife. Jace finally admits his dreams to Clary, and she suggests they go to the Silent Brothers, an elite group of Shadowhunters who are able to read people's minds. The Brothers are able to see that when Jace faced his adopted father, Valentine, back in the Shadowhunter world, Valentine had killed him. Clary had been granted one request from the angel Raziel, and she had asked for Jace to be returned from the dead. Shadowhunters, the Silent Brothers explain, go through a ritual when they are born to keep them from demonic influence. When Jace came back to life, he was essentially reborn, but without the spells to protect him. The Brothers agree to perform the ritual to cover him, but warn that it will be difficult. Clary leaves him with the Brothers and returns to the city to go to her mother's engagement party.
Simon is lured away from the party by the appearance of the young fan he'd attacked. She's become a vampire, but not by his bite. She leads him to an abandoned building to meet with Lilith, the first of all the demons. Lilith has preserved the body of Valentine's son, Jonathon, whose mother, Jocelyn, had been given demon blood while pregnant. Lilith knows that Jace was brought back from the dead and believes the Old Laws demand that one of demon blood must be brought back in order to keep the natural balance. To complete the ritual, she needs Simon to drink Jonathon's blood and give Jonathon some of his blood. When Simon refuses, Lilith brings Jace into the room. Lilith is the one who has been haunting Jace's dreams, and she was able to convince him to bind himself to her command. Jace has brought Clary with him and holds a knife to her throat. Simon agrees to bite Jonathon to keep Jace from killing Clary. Clary manages to obscure the rune binding Jace to Lilith, and a battle ensues. When the demon strikes Clary, Simon throws himself in front of the blow. Because of the Mark of Cain, Lilith is turned to salt. Jace is left alone with Jonathon's body, while Clary and Simon talk to their friends and other Shadowhunters who have arrived at the scene. Jace is still compelled to obey Lilith's commands, even though she's gone. Simon has revived Jonathon's spirit, and now he calls Jace to finish the ritual that will bring him back to life. The two exchange blood through cuts in their hands, and Jace realizes that Jonathon has taken possession of his body.