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Returning home to the Laguna Pueblo reservation from World War II, via a Veteran's Hospital, Tayo must find a way to cure himself of his mental anguish, and to bring the rain back to his community. Combining prose and poetry, Ceremony interweaves the individual story of Tayo and the collective story of his people. As Tayo's journey unfolds, it is paralleled by poems telling old stories.

The trauma of thinking he saw his uncle Josiah's face among a crowd of Japanese soldiers he was ordered to shoot, and then of watching his cousin Rocky die, drove Tayo out of his mind. A period of time in a Veterans' Hospital gets him well enough to return to his home, with his Grandmother, his Auntie, and her husband Robert. This is the family unit that raised him after his mother, who had conceived him with an unknown white man, left him for good at the age of four. In his family's home Tayo faces not only their disappointment at the loss of Rocky, but also his continued grieving over his favorite uncle Josiah's death. He also contends with his guilt over a prayer against the rain he uttered in the forests of the Philippines, which he thinks is responsible for the six-year drought on the reservation.

As he slowly recuperates, Tayo realizes that he is not alone. His childhood friends Harley, Leroy, Emo, and Pinkie who also fought in the war contend with similar post-traumatic stress, self-medicating with alcohol. The company is little comfort. His old friends spend their drunken hours reminiscing about how great the war was and how much respect they got while they were in uniform. These stories only make Tayo think about the tremendous discrimination the Native Americans face at the hands of the whites, whom they nonetheless seem to admire, and he is even more saddened and infuriated. Just as Tayo begins to give up hope and to wish he could return to the VA hospital, his grandmother calls in the medicine man, Ku'oosh. Ku'oosh performs for Tayo a ceremony for warriors who have killed in battle, but both Ku'oosh and Tayo fear that the ancient ceremonies are not applicable to this new situation.

Tayo is helped but not cured by Ku'oosh's ceremony. It prompts him to consider his childhood, especially the summer before he left for the army. Although Auntie did her best to keep the two boys separate, Tayo and Rocky became close friends, and the summer after they graduated from high school, they enlisted in the army together. That summer, Josiah fell in love with Night Swan, a Mexican woman who lived just outside the reservation. At her urging, he invested in a herd of Mexican cattle, which Tayo helped him to care for. As so often happens, there is a drought that summer. Having heard the old stories of how droughts are ended, Tayo goes to a spring and invents a rain ceremony. The following day it rains. In addition to helping the crops and the cattle, the rain keeps Josiah from visiting Night Swan. He asks Tayo to bring her a note. Tayo delivers the note, and in the process is seduced by Night Swan.

Realizing that his ceremony has not been enough for Tayo, Ku'oosh sends him to the nearby town of Gallup to see another medicine man, Betonie, who knows more about the problems incurred by the contact between Native American and white cultures. Although he is skeptical of Betonie's strange ways and especially high connection with the white world, Tayo tells him of his what is troubling him. Betonie listens and explains that they must invent and complete a new ceremony. Tayo accepts. Betonie tells Tayo stores of the old ceremonies as he performs them. Then Betonie tells Tayo stories of his grandfather, Descheeny, and the beginning of the creation of a new ceremony to stop the destruction the whites, an invention of Native American witchery, are wreaking on the world.

Betonie sends Tayo back home, reminding him that the ceremony is still far from complete. When he meets Harley and Leroy on the way home, Tayo slips back into their lifestyle for a moment, but soon moves on, heeding the signs Betonie told him of as he searches for Josiah's cattle. Tayo follows the stars to a woman's house. After spending a night with the woman, Ts'eh, Tayo heads up into the mountains. He finds Josiah's cattle fenced into a white man's pasture. While Tayo breaks into the pasture, the cattle run off to its far reaches, and Tayo spends all night looking for them. As dawn approaches, Tayo is about to give up when a mountain lion comes up to him. Tayo honors the mountain lion, and follows its tracks to the cattle. Just as he herds the cattle out of the pasture, two white patrolmen find Tayo. Not realizing that the cattle are missing, but knowing Tayo has trespassed, the patrolmen arrest Tayo. Before they can bring him to town, however, they notice the mountain lion tracks and let Tayo go in order to hunt it. As Tayo heads out, it begins to snow. Tayo knows this will cover the tracks of his cattle and of the mountain lion, making the patrolmens' efforts fruitless. On the way down the mountain, Tayo meets a hunter, who lives with Ts'eh. When they arrive back at her house, she has corralled Tayo's cattle, which she keeps until Tayo and Robert return with a cattle truck to gather them up.

Returning home with Josiah's cattle, Tayo feels cured. However, the drought persists, and Tayo knows the ceremony is not complete. He goes to the family's ranch with the cattle, where he finds Ts'eh . They spend the summer together, but as it draws to an end Robert visits and warns Tayo that Emo has been spreading rumors about him. Shortly thereafter, Ts'eh tells Tayo that Emo and the white police are coming after him. Before she leaves, she tells Tayo how to avoid capture.

Following Ts'eh's instructions, Tayo easily evades the white police. Still running from Emo, he meets Harley and Leroy. Almost too late, Tayo realizes that Harley and Leroy have joined forces with Emo. Running again, Tayo finds himself in an abandoned uranium mine. As he looks at the gaping hole left in the earth, Tayo realizes that this is the last station of his ceremony, the one where he incorporates an element of white culture, the mine. All he has to do is to spend the night there and the ceremony will be complete. Soon Emo and Pinkie arrive. From a hiding place, Tayo must watch them torture Harley to death, and restrain himself from killing Emo in order to save Harley. With the help of the wind, Tayo survives the night. He returns home and goes back to Ku'oosh. After hearing all about Tayo's ceremony, Ku'oosh pronounces that Ts'eh was in fact A'moo'ooh, who has given her blessings to Tayo and his ceremony; the drought is ended and the destruction of the whites is stopped. Tayo spends one last night in Ku'oosh's house to finish off the ceremony, and then he returns home.

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