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Demian presents the reflections of an older man on his childhood. In this book, Emil Sinclair recounts the various episodes of his childhood that led to a profound change in his Weltanschauung or worldview. Interspersed in and among these tales are Sinclair's recollections of what he was thinking at the time in question and some analysis of why he acted as he did in any given situation.

The first episode occurs when Sinclair is ten years old. Sinclair invents a story about stealing some apples and is then blackmailed by an eleven year old thug, Franz Kromer. Not having enough money to pay off Kromer, Sinclair begins to steal and is otherwise subjected to tormenting humiliation by Kromer. A slightly older, but amazingly mature boy, Max Demian, soon enters Sinclair's school. He approaches Sinclair one day after class and presents him with an inventive interpretation of the story of Cain and Abel. This interpretation contradicts the standard Christian story Sinclair has been fed and the new idea excites Sinclair. Seemingly knowing everything, and with unbounded capability, Demian convinces Kromer to stop tormenting Sinclair. Freed from the source of his tensions, Sinclair abandons Demian and attempts to become a more model child.

After a number of years of only peripheral contact, Sinclair and Demian are reunited in a confirmation class. Though they do not spend much time together at first, their relationship is rekindled after the teacher discusses Cain and Abel in class one day. Demian switches his seat to be next to Sinclair and they spend much time discussing the will and exploring Demian's uncanny ability to affect how other people act. During this time, Sinclair's religious faith begins to wane. Demian presents him with the thought that worshipping the God of the Bible is not sufficient. The God of the Bible represents all that is sanctified and good in the world, but, Demian insists, one ought to worship the entire world—the evil parts too. Sinclair is elated that Demian has touched on these thoughts—that the world is divided in two realms—light and darkness, good and bad.

Sinclair enters boarding school, confused and unsure of what he thinks and believes. One day he is approached by an older boy, Alfons Beck, who invites him to a bar. They go off together, drink wine, and chat. This marks the beginning of a rebellious streak and a new group of friends for young Sinclair. He often goes out late into the night, drinking and carousing. However, he refrains from one of the activities popular among his friends: he refuses to go with them when they visit women because Sinclair has a yearning for love, not sex. One day in the park, Sinclair sees a girl who is, for him, the paradigm of beauty. She has some male features, but is surrounded by an incredibly alluring air. Though he never speaks to her, he names her Beatrice, and she becomes a symbol for him, an ideal for whom he acts. Immediately he reforms his behavior and ceases his activities with his friends. Also, he begins to take up painting and paints a picture of this girl. Days later he realizes that the picture is also a picture of Demian.

In class one day, Sinclair finds a note that speaks about breaking free. Also, it mentions a god, Abraxas. Sinclair is certain that the note is from Demian. Only half paying attention to the day's lecture, Sinclair perks up when he hears his teacher mention Abraxas. The teacher says that Abraxas is an ancient God who contains both divine and satanic elements.

Strolling about town one day, Sinclair hears music emanating from a small, locked church. He is moved by it and sits outside to listen for a while. He does this many times and eventually decides to trail the organist as he leaves after playing on one occasion. Sinclair follows him to a bar and sits beside him. They begin to chat and Sinclair mentions Abraxas. At once, the organist, Pistorius, takes a great interest in Sinclair. This is the start of an intense relationship between the two men. Pistorius becomes a mentor to Sinclair, helping him to learn further things about himself and teaching him a bit about Abraxas.

Knauer, a classmate of Sinclair, approaches him after school one day, seeking guidance. Sinclair feels that he has very little to offer to the boy. Sinclair tells him only that he needs to learn to be comfortable with what his innermost soul wants. Later, out for a stroll one restless night, Sinclair comes across Knauer, who is ready to commit suicide. He saves Knauer, for which Knauer later displays much gratitude and allegiance.

Sinclair begins to see that Pistorius has limitations. He tells Pistorius that he is too "antiquarian." He brings Pistorius to recognize that he can only teach Sinclair about old gods and ideas of the past—he is not creative enough to invent new ones. Their relationship ends as Sinclair ends his time at preparatory school. Before entering university, Sinclair visits Demian's old house. There, the new owner shows him a picture of Demian's mother. Sinclair realizes that she looks exactly like the portraits he has been drawing, and he unsuccessfully searches for her.

Strolling around his college town one evening, Sinclair runs into Demian and they are happily reunited. Demian tells Sinclair that his mother will be very excited to see him; he tells him to come by whenever he is ready to see her. The next day, an excited Sinclair goes to the Demian household. He and Frau Eva bond at once. They speak of the long journey he has undergone to arrive at this point.

Sinclair soon becomes a regular in the Demian household. He is immensely happy to be spending his time with Demian, Demian's mother, and others of their type who pass through. There is, however, a note of darkness—both Demian and Sinclair have premonitions of evil to come. Talk about a war begins to brew. Sinclair spends that summer with the Demian family, further strengthening his bond with both Demian and Frau Eva. One day he summons his mental energy to telepathically call Frau Eva. She hears his call and sends Demian to him. Sinclair is ecstatic that it works.

War begins and Demian is called to serve as a lieutenant. Before Sinclair goes off to war, Eva tells him that he now knows how to call her and whenever he needs to, he can do so and she will send somebody like her to his side.

Sinclair is wounded in battle. He summons his energy and finds Demian by his side one night in the infirmary. Demian tells Sinclair that if he ever feels like he needs help, he no longer needs to call Demian. He simply needs to look inside himself and he will see that Demian is within him. With that, Demian gives him a light kiss on the lips—a kiss that he says is from Frau Eva—and vanishes into the night.

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