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After a long journey by foot to Moonfleet, England in 1757, young John Mohune passes out, and awakens at a tavern surrounded by smugglers. The smugglers search his possessions and discover a letter written by John's late mother Olivia, instructing the boy to seek out a man named Jeremy Fox, who has returned from the colonies to live in the house that was once hers. Jeremy soon arrives at the tavern and, after questioning the boy, alludes darkly to a past "folly" between John's mother and himself. The following day, Jeremy's men load the struggling boy into a carriage and send him away, but John leaps out and is discovered by a girl named Grace, who offers to take him to Jeremy's home. Grace takes John to Mohune Manor, a once grand country estate showing the effects of years of neglect. Interrupting a festive dinner party, John tells Jeremy he wants to stay with him, and Jeremy is impressed by the boy's spirit. That night, John tells Jeremy he has had a nightmare about being attacked by dogs in the summer house, as his mother told him once happened to a friend of hers. Jeremy blanches but dismisses the tale, until his mistress, Mrs. Minton, pulls down his shirt to reveal a mass of scars. When Mrs. Minton privately accuses Jeremy of still being in love with Olivia, he coldly tells her she must leave when the ship comes in the following week. The following day, John accompanies Grace to church, and Parson Glennie reprimands the congregation for their superstitious belief in the legendary ghost of Red Beard, who is believed to haunt the graveyard searching for his lost diamond. He adds that Red Beard was John's ancestor, Sir John Mohune, who betrayed his duty to the crown for a valuable diamond, then died a madman. After the service, John is walking through the churchyard when he stumbles into an open grave and falls into an underground tomb. John accidentally knocks over one of the stone caskets and finds a locket among the crumbling bones. He hides when he hears voices, and watches as a band of smugglers meet with Jeremy, who is the leader of their enterprise. The departing smugglers then cover up the grave, leaving John trapped in the catacomb. Later, at a party at Lord James Ashwood's house, Jeremy engages in a passionate flirtation with Lady Clarista Ashwood. Lord Ashwood asks Jeremy to go abroad with them as their business partner in a new venture. Just then, Jeremy receives a message from his aide, Felix Ratsey, that John has been found in the catacomb. He returns to the smugglers' lair, and the men proclaim that John has seen too much and should be killed. With the smugglers on the brink of rebellion, Jeremy defeats their ringleader, Elzevir Block, in a savage duel. As he prepares to leave with Jeremy, John retrieves the locket he found in the tomb from Ratsey. The locket contains a sheet of paper, and Ratsey observes that there are Bible verses written on it, but all the chapter citations are wrong. At home, Jeremy tells John he has no choice but to send him to the colonies, then reminds Mrs. Minton that she must depart that evening. Furious at her rejection, Mrs. Minton sends for the police, and Jeremy is ambushed on the beach. Mrs. Minton is killed in the shootout, but Jeremy and John escape. While they hide from the police, John shows Jeremy the locket and the paper with the misnumbered Bible verses, and Jeremy deduces that the numbers refer to a word in the verse, which spell out the location of the diamond, in the deep well at Hollisbrook Castle. Intending to use the diamond as his investment capital, Jeremy arranges to depart for the colonies with the Ashwoods the following night. In the morning, wearing a stolen military uniform, Jeremy takes John to Hollisbrook Castle and uses a bucket to lower him into the well, where the boy discovers a loose brick with the diamond hidden behind it. Later, in their hideout on the beach, John talks about their future life together in the colonies, and after he falls asleep, Jeremy leaves him a note and slips out to meet the Ashwoods. As they ride to the ship, however, Jeremy grows glum thinking of John, and abruptly stops the carriage and orders the driver to return to the beach. The driver fights with Jeremy, and Lord Ashwood stabs him in the back. Jeremy shoots Lord Ashwood, and the horses bolt, causing the carriage containing Lady Ashwood to crash. The mortally wounded Jeremy returns to the hideout and wakes John. Telling the boy their plans have changed, Jeremy gives John the diamond and instructs him to return to Moonfleet at dawn and tell Pastor Glennie everything. Assuring the boy he will return to England as soon as he can, Jeremy bids John goodbye and, with the last of his strength, pushes off to sea on a small boat. Later, at the Mohune estate, John tells Grace and Parson Glennie that he is sure Jeremy will come back because he is his friend.