The Dream of the Red Chamber is considered the greatest novel of Chinese literature. The son of a wealthy, noble family is born with a magic stone in his mouth. A darling and admirer of all the women and girls in the household, he rebels against his stern father and the social barriers of the time.

In the novel's frame story, a sentient Stone, left over when the goddess Nüwa mended the heaven aeons ago, wants to enjoy the pleasures of the "red dust" (the mundane world). The Stone begs a Taoist priest and a Buddhist monk to take it with them to see the world. The Stone, along with a companion (in Cheng-Gao versions they are merged into the same character), is then given a chance to learn from human existence, and enters the mortal realm, reborn as Jia Baoyu ("Precious Jade") – thus "The Story of the Stone".

The novel provides a detailed, episodic record of life in the two branches of the wealthy, aristocratic Jia (賈) clan—the Rongguo House (榮國府) and the Ningguo House (寧國府)—who reside in large, adjacent family compounds in the capital. One of the Jia daughters is made a Royal Consort, and to suitably receive her, the family constructs the Daguanyuan, a lush landscaped garden, the setting for much of subsequent action. The novel describes the Jias' wealth and influence in great naturalistic detail, and charts the Jias' fall from the height of their prestige, following some thirty main characters and over four hundred minor ones.

As the carefree adolescent male heir of the family, Baoyu in this life has a special bond with his sickly cousin Lin Daiyu, who shares his love of music and poetry. Baoyu, however, is predestined to marry another cousin, Xue Baochai, whose grace and intelligence exemplify an ideal woman, but with whom he lacks an emotional connection. The romantic rivalry and friendship among the three characters against the backdrop of the family's declining fortunes form the central story.