Lyra is being kept in a coma-like state by her mother after the battle finishing the previous book. Will, however, is travelling with 2 lesser angels in search of Lyra, while the angels are urging him to go to Lord Asriel (Lyra's father) and to use the knife to help defeat the Authority. One of the angels, however, returns to tell Asriel what has happened, only to die upon arriving. The remaining angel, Balthamos, remains to help Will but is grief stricken. They succeed in finding Lyra, and to rescue her, but Will breaks the subtle knife in the process. They are also aided in the escape by Tialys and Salmakia, tiny spy creatures called Gallivespians, who are working for Asriel.

In another storyline, Mary Malone, a physicist from Will's world, has followed the advice of Dust and travelled to another world, where she meets strange, but sentient, creatures. She learns there language, and develops a spyglass that allows her to see Dust which, she discovers, is no longer flowing the way it has for thousands of years. She must discover what has happened or her new friends, the mulefa, will die off. At the same time, the church has sent an assassin to follow after Mary, knowing that she will tempt Lyra in a way that will cause the church's downfall.

After escaping, they find Iorek, the great bear king, who is able to help re-forge the subtle knife, warning Will that it may be doing more than opening doorways to other worlds. Mrs. Coulter, meanwhile, has been captured by Lord Asriel's forces, and returned to his fortress. While there, she is shown the intention craft (which can move simply by you intending it to move). She steals the craft, and returns to the church, claiming she will reveal information about Asriel.

Lrya, troubled by her memories of her friend Roger (killed by Asriel in the first book) talks her companions into traveling to the world of the dead. They find their way (with the knife's help) but must leave their daemons behind to enter the land of the dead. They do so, painfully. Having found Roger, Lyra decides she must free them, so they travel to a high spot in the land, where Will cuts a window to the world Mary is in. During this journey, members of the church stole a lock of Lyra's hair from Mrs. Coulter and were going to use it to kill Lyra. Just in time, the ghosts warn Lyra of the plan and they cut the hairs that provided the lock, and the explosion does not kill her. However, it opens an abyss into nothingness, by which Dust now escapes rapidly.

Having cut a window out of the land of the dead, all the ghosts are able to free themselves from an eternity of nothing. Lyra, Will and the Gallivespians, however, exit to Asriel's fortress to find their daemons. A great battle is raging (between the angels of the Authority and those on Asriel's side), but they are eventually able to find their Daemons. Before that, however, they find an old man in a crystal cage, whom they free. Without the protection of his cage, however, the man (the Authority) disappears forever. At the last second, the two children escape into mulefa's world, but the Gallivespians die.

Meanwhile, during the battle, Asriel and Mrs. Coulter team up and attack Metatron (the Authority's reagent) and cast him into the abyss.

Lyra and Will find Mary, who was expecting them. Their daemons, however, have disappeared so they go off in search of them. Following them in their search, the church's assassin is about to shoot when he is attacked by Balthamos, who has returned to help Will. Killing the man, the angel gives up on life to join his lost love. Will and Lyra see their daemons, but are unable to coax them out. However, they find some solitude and are compelled to express their undying love for each other. This, it turns out, stops the flow of the Dust, saving the mulefa and all the worlds.

Friends from Lyra's world (the gyptians and a witch) come to help them return home. Unfortunately, they 2 things that devastate Will and Lyra: first, they must close up all the windows opened by the subtle knife to prevent Dust from continuing to leak out, and thus to maintain sentient life. Second, they must each live in their respective worlds because if either Will or Lyra returned to the other's world, they would die in just 10 years. They leave each other, grieving, with the glimmer of hope that they will one day learn another method to travel between worlds (as their daemons did while separated from the children).