Kendra Sorenson is finishing her final week of eighth grade when a hideously disfigured boy transfers to her school. When the other kids at school cannot see the boy's ugliness, Kendra realizes that he is a disguised magical creature called a kobold. One year earlier, Kendra and her younger brother, Seth, went to a mystical place called Fablehaven. Their Grandpa Sorenson, a guardian of Fablehaven, gave the children magical milk that temporarily allowed them to see magic creatures, but Kendra's magic vision became permanent after fairies kissed her.
A man named Errol Fisk meets Kendra outside her school and tells her that he is a kobold exterminator. Errol says he can make the dangerous creature leave Kendra's school, but only after Seth helps him steal a magical artifact in the shape of a toad figurine. The toad figurine is kept inside a funeral home, which is magically protected against break-ins from people over the age of 13, so 12-year-old Seth must enter alone. Seth and Kendra sneak away from home after their parents think they are asleep and meet Errol at a service station. Despite wondering if they can trust Errol, Kendra and Seth board his van and let Errol drive them to the funeral home where the toad figurine waits. After Seth retrieves the figurine, Kendra gives it to the kobold as a present. The kobold leaves town with the figurine, and Errol requests Seth and Kendra's help with another magical task.
Errol says he needs to steal an amulet from the Society of the Evening Star (SES), an organization dedicated to destroying magical preserves, such as Fablehaven, and freeing trapped demons. Kendra's Grandpa Sorenson calls her and tells her not to go with Errol because he is almost certainly an SES member himself. Instead of meeting with Errol, Kendra and Seth visit their Grandpa and Grandma Sorenson at Fablehaven to figure out what the SES is plotting.
Fablehaven is one of five magical preserves in the world, and each preserve has a powerful artifact hidden on its grounds. Few people know about the existence of any of the preserves, and no one knows the location of all five. When put together, the five artifacts from the hidden preserves form a key to Zzyzx, an ancient prison that contains thousands of demons. If the SES succeeds in stealing the five artifacts and unlocking, Zzyzx, the world will end. Grandpa Sorenson thinks that Fablehaven's secret artifact should be moved to a safer location, but even he does not know where the artifact is kept. Kendra and Seth are introduced to Tanu, Coulter and Vanessa, three artifact finders who have been brought into Fablehaven to complete this task. Seth learns that the small toad figurine he stole for Errol is a demon called Olloch the Glutton who will eventually hunt down and try to eat Seth, the person who freed him.
Seth and Kendra begin to follow Tanu, Coulter and Vanessa around Fablehaven, learning from them. They also meet with a powerful ally called the Sphinx, who tells Kendra that she has been transformed into a rare type of magically talented human called fairykind. The Sphinx says that the SES will likely try to find Kendra and use her for their plot to find the five artifacts, since her powers would be a great asset.
Olloch the Glutton enters Fablehaven and tries to attack Seth. Olloch has now grown from a small toad figurine into a toad-monster the size of a pony, but Seth is magically protected from Olloch's attacks when he returns to the yard of his grandparents' house. Grandpa and Grandma Sorenson decide that there must be a traitor in Fablehaven, because Olloch could not be there unless someone from within the preserve had invited him.
Coulter invites Seth to look for Fablehaven's hidden artifact before Olloch grows so strong that they cannot venture out. Coulter and Seth encounter Olloch, but Seth manages to encase himself inside a magical protective cocoon before Olloch swallows him. Coulter returns alone to Grandma and Grandpa Sorenson's house, and Kendra and her grandparents begin to grieve for Seth. Coulter is dazed and unable to speak, so everyone assumes that he is the traitor in Fablehaven because he lured Seth to his death, but Vanessa is the real traitor. Vanessa attacks Grandma and Grandpa Sorenson and mind-controls Tanu to make him chase after Kendra. Kendra runs into the woods and avoids Tanu.
After Olloch swallows him, Seth spends several hours inside the protective cocoon, within the creature's stomach. When Seth finally breaks through his cocoon, he finds that he and his cocoon have passed safely through Olloch's digestive tract and Olloch has turned into a dormant statue again. Seth walks through the Fablehaven woods and reunites with Kendra.
In order to sneak into Grandma and Grandpa Sorenson's house to rescue their grandparents, Kendra and Seth drink some of Tanu's temporary shrinking potions. They find their grandparents imprisoned in the basement dungeon and learn that Vanessa has the key to retrieve the Fablehaven artifact from its hiding place, though she is not in possession of the artifact yet. Seth steals the key from Vanessa.
To reach the artifact, Seth must get past an enchanted, zombie-like creature called a revenant that can create artificial fear in others. Seth takes a bravery potion before he encounters the revenant. He is able to overcome his fear and defeat the revenant by pulling a wooden nail out of the creature's neck. Seth is too drained from his encounter to continue, but Kendra and her friend Warren walk past the fallen revenant and into the grove he was protecting. They find a stone platform with a keyhole, and they use the key Seth stole to open a secret underground passage.
Inside the underground vault, Kendra and Warren fight monsters and solve puzzles until they discover a glass figurine of a cat. The glass cat guards Fablehaven's artifact, and Kendra and Warren must kill it repeatedly. After killing the cat three times, Kendra and Warren are joined by Vanessa and Errol, who suggest that they team up to destroy the cat, even though they are enemies. The cat grows larger and more dangerous with every new life, and when it has begun its ninth life, Errol, Vanessa and Warren are all horribly wounded. Tanu and Coulter arrive in the vault, and Tanu defeats the ninth incarnation of the cat. The guardian cat then transforms into Fablehaven's artifact, a copper teapot full of golden dust that can heal any ailment. Kendra uses the artifact to heal Tanu, Vanessa and Warren, but Errol has already died from his wounds.
Grandma and Grandpa Sorenson are freed, and Vanessa is incarcerated in the basement dungeon. The Sphinx arrives to discuss future plans for dealing with the SES' attempts to steal the five artifacts. He praises Seth and Kendra for their many acts of bravery in protecting the artifact. However, before Vanessa is imprisoned, she leaves a secret written message for Kendra. The message says that the Sphinx, Fablehaven's greatest ally, is actually the true leader of the SES and is not to be trusted under any circumstances.