A World War II veteran and Jewish refugee, Abe loves nothing better than to tell his grandson Jacob stories about his childhood. But these are no ordinary stories. They are populated with flesh-eating monsters, a hawk that smokes a pipe and children who have peculiar abilities — they levitate, lift heavy boulders with ease or eat using a mouth in the back of their heads. One boy is invisible, and another has a swarm of bees living inside him. As he grows older, Jacob becomes skeptical of his grandfather's stories, even though Abe shows him a cigar box full of old photos to prove he is telling the truth. When Jacob finally challenges his grandfather about the veracity of them, Abe never mentions them again.
Jacob is in high school when Abe begins to lose his mental faculty. As Abe enters this second childhood, the monsters in his stories become a very real terror to him. Jacob's father hides the key to Abe's gun cabinet to keep him from hurting himself or someone else. Late one evening, Abe calls Jacob. He is distraught, certain the monsters are after him. Jacob's friend Ricky drives him to his grandfather's house, only to find it ransacked and his grandfather missing. After a brief search, Jacob finds Abe dying in the woods behind his house. He has deep chest wounds, but before he dies, he gives Jacob a cryptic message. Go to the island. Find the bird in the loop on Sept. 3, 1940, on the other side of the old man's grave. In the moonlight, Jacob glimpses one of the monsters from his grandfather's stories, but no one else sees it.
The police conclude that Abe was killed by a pack of wild dogs. Jacob visits a psychiatrist named Dr. Golan and has nightmares about that night. He is afraid to leave the house. He has no idea what Abe's last words mean. On his birthday, his aunt gives him a copy of The Selected Works of Ralph Waldo Emerson, a book that used to belong to his grandfather. A letter falls out. It is postmarked Cairnholm Island and signed by headmistress Alma LeFay Peregrine, the woman who ran the children's home where Abe lived after fleeing Poland.
After convincing his parents that he should be allowed to spend the summer on Cairnholm, which is off the coast of Wales, Jacob and his father travel to the island. Dr. Golan is surprisingly supportive, saying that the experience will help Jacob demystify his grandfather's stories. At first, it seems that Dr. Golan is right. The house is a moldy, monstrous wreck in a boggy landscape. It was bombed during the war, and the children were killed; no one remains to answer Jacob's questions. All he can find are some pickled organs in jars and an old trunk full of photographs similar to the ones his grandfather showed him when he was a child. As he is in the basement looking at the photographs, he hears voices. A group of children, led by a girl whose palm is flaming, enter and stare at him. Then they run away.
Jacob chases after the girl, who runs through the bog to a Neolithic tomb and disappears inside of it. Jacob crawls into it, following her, but the chamber is empty. Frustrated to the point of quitting and certain that he is having psychotic episodes, he crawls back through the tunnel to the outside world. The perpetually rainy weather has suddenly turned sunny; people are using horses instead of cars, and when Jacob tries to enter the rooms he and his father are renting above the island's pub, the barman stops him and accuses him of being a spy. Jacob bolts, only to have the same girl he chased sneak up from behind and put a knife to his throat, asking if he is a wight, a witch-like, supernatural being. After being chased through town by a group of angry villagers, the girl (whose name is Emma) and an invisible boy (Millard) take Jacob back to the old house to meet Miss Peregrine. When he arrives, instead of seeing a bombed-out shell of a house, Jacob enters a well-maintained home for peculiar children — all of whom have unnatural abilities.
After calming Emma down, Miss Peregrine explains to Jacob that every day in her loop is Sept. 3. She is what’s called an ymbryne and can transform herself into a bird and manipulate time to create a safe haven for peculiar children, who otherwise would be persecuted and misunderstood by common people. Jacob is enchanted by this new world, and especially by Emma, who was Abe's sweetheart many years ago, before he left the loop to fight monsters. For several days, Jacob lives a fairly idyllic existence in the company of the peculiar children, returning to the future each night so his father doesn't become suspicious.
Jacob meets a peculiar boy named Enoch who can make clay dolls live by inserting animal hearts into their chests. Enoch tells Jacob where to find Victor, the boy Miss Peregrine doesn't want him to know about. Jacob enters Victor's room and realizes that the boy in the bed isn't sick but dead. Jacob demands answers, and Emma promises to give them to him later that night.
On another visit to Miss Peregrine's, Jacob meets Emma, and she secretly rows him out to an old shipwreck. The hull lies a few inches beneath the surface. They swim together, kiss for a while, and then Emma asks him to stay. When he hesitates, she insists that he isn't common. Like Abe, Jacob has a special talent — to see monsters.
When they return to the house, they learn that one of Miss Peregrine's fellow ymbrynes, Miss Avocet, has unexpectedly arrived in their loop. She tells them that a pair of wights invaded her loop, and she only just escaped. Wights are kidnapping ymbrynes in loops all over the world, and she came to warn them.
That night, Miss Peregrine explains everything to Jacob. The monsters are known as hollows. They were once peculiar children who tried to conquer time instead of simply suspending it. But their experiment went horribly wrong. Although they made themselves immortal, their lives became a living death. They are driven to consume peculiars, but will eat common people or animals if necessary. If a hollow eats enough peculiars, it transforms into a wight. A wight appears common, except that it has no pupils. It has no special abilities but spends its time seeking peculiar children for its hollow brethren to devour.
Jacob is allowed to return to the present but is warned to keep a close watch for anything unusual. Security within the loop is tripled, and the children are not allowed outside. When Jacob's father meets a man wearing sunglasses at night, and a villager's partially consumed remains are fished out of the ocean, Jacob rushes to tell Miss Peregrine the news. She forbids him to leave the loop, but the children want to know for sure if a hollow is on the island. Since Enoch can raise the dead (briefly), they decide to ask Martin, the dead man, what happened to him.
A group of peculiars, led by Jacob, secretly leave the loop for the village. Martin is being stored on ice in the fishmonger's shop, and he is consulted. He confirms their worst fear, just as a wight steps through the doorway with a hollow behind him. The wight knows who Jacob is, and Jacob realizes that it is his psychologist, Dr. Golan. He tells them that they are kidnapping ymbrynes so they can try to create the biggest time loop in history. He tries to convince Jacob to help them in return for his safety, but Jacob refuses. Golan leaves the children to be eaten, but Bronwyn, an unnaturally strong peculiar girl, throws the trough containing Martin's body at the hollow, and then rams into the shop wall, breaking through and allowing the children to escape.
On their way to the loop, the children hide in an old shack that shepherds use to shelter their sheep during bad weather. Jacob grabs a pair of shears to defend himself. Despite the overwhelming stench of sheep feces, the hollow senses their presence and eats its way through the sheep toward them. They split up, and the hollow follows Jacob. He is about to be eaten when he stabs the hollow in the eyes with the shears, killing it. Emma and Jacob enter the loop, but Golan has already been there. He has kidnapped both Miss Peregrine and Miss Avocet, and has locked the children in the basement. Miss Peregrine, in her bird form, is confined to a birdcage.
Jacob and his friends follow Golan to the ocean, where he used Emma's rowboat to row to a lighthouse. Emma, Jacob, Millard and Bronwyn swim out to the shipwreck, but Golan shoots at them. Millard volunteers to swim further, but gets shot. Bronwyn rips the cargo hold door from the wreck and uses it as a shield so they can approach the lighthouse safely. She throws the door at Golan, injuring him. Emma and Jacob shake the stairs of the old lighthouse that Golan is climbing, and he drops his gun. Despite bleeding profusely, Golan throws the birdcage containing Miss Peregrine over the railing at the top of the lighthouse and into the sea. Emma tries to burn him, and he tries to strangle her until Jacob shoots him in the neck and he, too, falls over the railing. Jacob and Emma rescue Miss Peregrine (who seems trapped in her bird form), but the loop does not reset that night and the house is destroyed. A peculiar who has prophetic powers has a vision about where the wights are taking the ymbrynes, and the children plan to find other loops and stop the hollows and wights from killing all the peculiars and destroying the world. They bury Victor, gather maps and supplies, and leave the island for the mainland the next day.