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Peter is a seven-day-old infant who, "like all infants", used to be part bird. Peter has complete faith in his flying abilities, so, upon hearing a discussion of his adult life, he is able to escape out of the window of his London home and return to Kensington Gardens. Upon returning to the Gardens, Peter is shocked to learn from the crow Solomon Caw that he is not still a bird, but more like a human – Solomon says he is crossed between them as a "Betwixt-and-Between". Unfortunately, Peter now knows he cannot fly, so he is stranded in Kensington Gardens. At first, Peter can only get around on foot, but he commissions the building of a child-sized thrush's nest that he can use as a boat to navigate the Gardens by way of the Serpentine, the large lake that divides Kensington Gardens from Hyde Park.
Although he terrifies the fairies when he first arrives, Peter quickly gains favor with them. He amuses them with his human ways, and agrees to play the panpipes at the fairy dances. Eventually, Queen Mab grants him the wish of his heart and he decides to return home to his mother. The fairies reluctantly help him to fly home, where he finds his mother is asleep in his old bedroom.
Peter feels rather guilty for leaving his mother, mostly because he believes she misses him terribly. He considers returning to live with her, but first decides to go back to the Gardens to say his last good-byes. Unfortunately, Peter stays too long in the Gardens, and, when he uses his second wish to go home permanently, he is devastated to learn that, in his absence, his mother has given birth to another boy she can love. Peter returns, heartbroken, to Kensington Gardens.
Peter later meets a little girl named Maimie Mannering, who is lost in the Gardens. He and Maimie become fast friends, and little Peter asks her to marry him. Maimie is going to stay with him, but realizes that her mother must be missing her dreadfully, so she leaves Peter to return home. Maimie does not forget Peter, however, and when she is older, she makes presents and letters for him. She even gives him an imaginary goat which he rides around every night. Maimie is the literary predecessor to the character Wendy Darling in Barrie's later Peter and Wendy story.
Throughout the novel, Peter misunderstands simple things like children's games. He does not know what a pram is, mistaking it for an animal, and he becomes extremely attached to a boy's lost kite. It is only when Maimie tells him that he discovers he plays all his games incorrectly. When Peter is not playing, he likes to make graves for the children who get lost at night, burying them with little headstones in the Gardens.

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