For centuries mystical creatures of all description were gathered into a hidden refuge called Fablehaven to prevent their extinction. The sanctuary survives today as one of the last strongholds of true magic. Enchanting? Absolutely! Exciting? You bet! Safe? Well, actually, quite the opposite... Kendra and her brother, Seth, have no idea that their grandfather is the current caretaker of Fablehaven. Inside the gated woods, ancient laws keep relative order among greedy trolls, mischievous satyrs, plotting witches, spiteful imps, and jealous fairies. However, when the rules get broken—Seth is a bit too curious and reckless for his own good—powerful forces of evil are unleashed that cause Kendra and Seth to find the courage to do what they fear most.
Kendra and Seth Sorenson are sent off by their parents to Grandma and Grandpa Sorensons house for seventeen days while their parents go on a cruise set up by Grandma and Grandpa Larson for their children and spouses after they died. When they get to the house, Grandpa Sorenson tells them that their grandmother is visiting their dying Great Aunt Edna and introduces them to Lena, the half-Asian housekeeper, and Dale, a man who helps Grandpa Sorenson tend to the grounds. Once Seth and Kendra's parents are gone, Grandpa Sorenson sets up two rules: they must keep out of the woods, and they cannot go in the barn.
They visit their attic bedroom, and much to Kendra and Seth's delight, it is filled with many toys and activities to keep them busy. Also, there is a pet chicken named Goldilocks. Before he leaves, Grandpa Sorenson gives Kendra three keys so that they can, as Grandpa says: "See if you can figure out what each unlocks." Seth and Kendra go swimming the next day and Kendra brings out a mirror to shine light in Seth's eyes. When she leaves it out, hoards of butterflies, bumblebees, and hummingbirds flock over to it. When Kendra and Seth flip over the mirror, the obsessed critters flip it back over again.
Later, Kendra finds that the biggest key unlocks a jewelry box full of costume jewelry, and the tiniest key unlocks an armoire inside the dollhouse. In the armoire is a piece of chocolate shaped like a rosebud, and a small golden key, bigger than the key that opened the armoire, but smaller than the key that opened the jewelry box. Kendra searches a telescope that stands near a window for keyholes but finds nothing. She is about to turn away when she sees Dale carrying something in both hands. When she goes to the yard to confront him, it turns out that it is just milk. Dale tells Kendra that their milking cows make a little extra milk than they need, so he puts it out for the insects, and also not to tell Grandpa Sorenson in case he disapproves. Seth disobeyed direct rules and was wandering the woods when he found a creepy old lady in an ivy shack. He ran back to the yard once she dared him to do something almost certainly dangerous. Back at the house, Kendra finds the Journal of Secrets with 3 keyholes, but none of the keys she has fits except the golden one she found in the dollhouse. Seth shows Kendra a hidden pond with gazebos, a boardwalk, and a boathouse. That night at dinner, Grandpa asks a rhetorical question, stating, "What do you suppose makes people so eager to break rules?" When Seth says that they weren't afraid of ticks, Grandpa tells them the real reason why they have to stay out of the woods: He really runs a preserve full of endangered, poisonous animals. Seth goes into lawyer mode and manages to worm out of trouble. Since they have disobeyed his orders, they have to stay inside the house until their parents come to get them, but luckily, Kendra talks him out of it and they get partial punishment as a warning.
Soon after, Kendra figures out how to open the journal completely, and inside all she finds is a single phrase, 'drink the milk'. Deciding that she needed a guinea pig to test the milk that Dale claimed to be hazardous, Kendra dared Seth to drink the milk. When Kendra drinks the milk, the insects flying around suddenly turn into fairies. Grandpa explains that his property is not a preserve for endangered animals, but for magical creatures such as fairies, trolls, and centaurs. This piece of information would completely turn their visit around, though not at first. Seth made a bad choice concerning a fairy and was turned into some sort of mutated walrus. Luckily, Muriel, the old lady Seth found in the woods, managed to sort him out, but at a high price to his family.
Later, Grandpa explains that Midsummer Eve is a time when all creatures, light or dark, can roam into the yard. He warns them to never open the window for whatever reason. Giving in to his curious, disobedient reality, Seth opened the window. That single action put his grandparents in danger, his sister in danger, and ultimately, he put the world in danger. When the night is over, they discover that Stan and Lena have been taken and that Dale has been turned to stone. They soon discover that their pet chicken is actually their transfigured grandmother, Ruth. Despite their uncertainty and worry, they sought help from Muriel to restore Ruth to her former state. This results in Muriel's release. They, along with their grandma, sought help from Nero and his seeing stone. Then they attempt to launch a rescue to free Stan, Dale, and Lena, The attempt fails and as a result, Hugo is destroyed, and Seth and Grandma are captured. Kendra uses Viola's milk to make a mixture which helps her summon fairy warriors who help her defeat Muriel and a reawakened demon Bahumat. Afterward, the fairies make her fairykind, which gives her the ability to see magical creatures without drinking the milk, speak Silvian and other related languages, see in the pitch dark, and negate the effect of some mind-control spells on her.