The narrative follows a group of seven European industrialists, artists, and analysts—accompanied by Lord Sombrewater's daughter Lychnis—who travel on a steam-yacht in Far Eastern seas. Prompted by an industrialist's desire for quiet and a poet's visions, they find themselves aground in an extraordinary Peach-blossom Valley in China. Here, they encounter an ancient system of thought and existence, guided by a mysterious Chinese mandarin named Yuan and his family. The visitors establish themselves in elaborate pavilions, but the tranquil perfection of the environment soon challenges their western habits of mind and their European philosophies of progress and materialism.
As the arguments develop, each traveler reacts differently to the overwhelming aesthetic and spiritual atmosphere of the valley. Sprot remains anxious and defensive, clinging to his practical bourgeois mentality, while Fulke Arnott struggles with revolutionary zeal and an unrequited, idealized passion for Lychnis. Sir Richard Frew-Gaff attempts to apply scientific observation to phenomena that defy conventional explanation, and Terence Fitzgerald searches continually for mystical visions. Meanwhile, Blackwood retreats into a form of passive nihilism, and Quentin plunges recklessly into the sensuous pleasures offered by the environment.
Lychnis becomes the central figure of the journey, undergoing a profound transformation. She is drawn into an intense, silent communion with Yuan, whose existence embodies an absolute detachment from relative human desires and an ultimate merger with the unnameable reality of the universe. Through her conversations with Ambrose Herbert, the detached annalist of the group, and her initiation into the deep, non-human consciousness of nature, she transcends ordinary human emotion. She eats the mystic peach offered by Yuan, surrendering her self to an experience of timeless immortality.
Tensions rise among the Europeans as they realize the profound alienation between their own restless, self-conscious worldview and the motionless eternity embodied by their hosts. The sudden, indifferent drowning of Hsiao highlights the vast chasm between western sentiment and eastern transcendence. Despite the growing discomfort of her father and companions, Lychnis embraces her profound alienation from ordinary life.
As the time for departure approaches, the party prepares to return to Europe, but Lychnis remains entirely altered, having stepped beyond the ordinary boundaries of human desire and personality. She stays behind in the silent valley, attuned to the pitiless and inexorable universe that Yuan and Wang Li inhabit.