An introduction explains that this tale was found among the papers of a man named Diedrich Knickerbocker, a historian of the Dutch settlers of New York. Knickerbocker, however, was less interested in getting his history from books than from other people's stories. The narrator insists that Knickerbocker's greatest attribute was his accuracy, and that the truth of the story to come is assured.  

Rip Van Winkle lives in a small Dutch village along the Hudson River in the shadow of the Catskill Mountains (spelled here Kaatskill). Rip is a good-natured man, though inclined to avoid work. His wife considers him a terrible husband, yet he is beloved throughout the village. He does odd jobs for others and plays games with the children. He is attentive to everyone else's business but his own, which frustrates his wife constantly. His small farm is chaotic and poorly managed, and the soil produces less and less yearly. The state of his children reflects his general disinterest in taking care of his own responsibilities, and his son looks to be inheriting his father's traits.  

Rip’s idleness is mirrored in both his dog, Wolf, and the company he keeps at the village inn, where other men sit and chat about the issues of the day without much enthusiasm. The schoolmaster, Derrick Van Bummel, reads whatever news comes their way and the landlord of the inn, Nicholas Vedder, steers opinion through his pipe smoke exhalations.  

One evening, Rip rests in the wilderness after squirrel hunting with his dog. He sees a stranger, dressed in old-fashioned Dutch clothes, climbing the hill toward Rip and lugging a keg on his shoulder. The stranger gestures to Rip to help, which Rip does, though stunned by the man’s appearance. Hearing what he believes is thunder, Rip follows the stranger through a ravine into a hollow, where he sees more strange-looking men dressed in similarly outdated clothing joylessly playing a kind of bowling called nine-pins. They remind Rip of a painting of old Flemish men belonging to the village parson. The sound that Rip believed to be thunder turns out to be the sound of the balls being rolled toward the pins. The players stop playing at his approach and fill their cups with liquor from the keg. They drink and return to their game, even as Rip is awed and unnerved by their appearance. Eventually, Rip tries the liquor and finds it to his liking. After more than a few drinks, he falls asleep. 

Upon waking, Rip finds himself where he first saw the man with the keg. He worries that he has slept there all night and anticipates a scolding from his wife. He notices that his well-loved gun is gone, and in its place are the rusted, ruined pieces of what was once a rifle. Unable to call his dog to him, he is determined to revisit the scene of the previous evening's encounter. Stiff upon rising, he wanders through the woods again, but the way is blocked, and he can’t find the hollow. Unhappy about losing his dog and the prospect of seeing his wife again, he heads home. 

Arriving back in his village, he notes that people are wearing a different style of clothing than he is used to, and those who acknowledge him all seem to stroke their chins. Stroking his own, Rip finds a foot-long grey beard. As he moves through the village, he finds it altered: bigger, more populated, full of children he doesn't know and names he doesn't recognize over doors and on businesses. He begins to fear that the drink has confused him to the extent that he can't recognize his own village or is somehow in a different village. Making his way to his house, he finds it in ruins with a strange dog skulking around that growls at him. The house is empty, and it appears as though no one has lived there for quite some time.  

Hoping to find some remnant of familiarity, he goes to the inn, but even that is altered. It is now The Union Hotel, with a flagpole replacing the large tree that stood outside the inn he frequented. The flag that flies atop the flagpole is an American flag, and the portrait on the inn of King George has been replaced with a portrait of George Washington. Instead of the group of idle men lounging outside the door, there is a bustling crowd, including one man talking loudly about political concerns, of which Rip understands nothing. 

Rip's strange appearance and unfamiliarity draw attention from the crowd. As they inquire about which side he voted for in the election, Rip has no idea what anyone is talking about. One man, seeing Rip's old rifle, accuses Rip of planning to stir up trouble. When Rip, flustered, cries that he is just a simple man, an inhabitant of the village, and loyal to the king, there is an uproar that takes some time to settle down. When Rip finally asks after his friends at the tavern, he is told of their fates: two dead, one in congress. It is also revealed that Nicholas Vedder has been dead for 18 years, indicating Rip has been gone for at least that long. Dismayed, Rip asks if anyone knows Rip Van Winkle. A few in the crowd point out a young man, and as Rip considers him, he realizes that this young man looks just like him at the age he fell asleep. Someone asks what his name is, and he is at a loss, confused by this twin version of himself, his age, and the changed world around him.  

At this, the crowd begins to believe that this old man has lost his wits, before a young woman is heard shushing her baby, whose name is apparently Rip. When asked her name and her father's name, it is revealed that she is Rip's daughter, and she explains that he disappeared 20 years ago and hasn't been seen since. When asked, she tells Rip that Dame Van Winkle recently died. Rip exclaims that he is her father, and then looks around to ask if anyone remembers him. An elderly woman recognizes him by name, and asks about his prolonged absence. As Rip tells his story, the crowd is skeptical. The village, however, agrees to let Peter Vanderdonk decide whether or not the story is reasonable. Vanderdonk is the oldest person in the village and knows the history of the area as well as the folklore. He describes the surrounding mountains as being inhabited by strange creatures. He also claims that Hendrick (Henry) Hudson and his crew, legendary explorers of the area, come back every 20 years to visit and make sure the land is still in good order. In fact, Vanderdonk's father had once seen them, dressed in their old-fashioned clothing, playing nine-pins. Vanderdonk himself says that he once heard the thundering of their bowling balls one summer afternoon. This wise testimony seems to validate Rip's story in the eyes of the townspeople. 

Rip moves in with his daughter and her husband, whom Rip recognizes as one of the children he used to play with in his youth. He resumes his idle ways, now old enough to do so without criticism. He takes walks and sits outside the hotel, telling stories about the time before the war and learning more about how the world has changed in his absence. Soon, everyone in town knows the tale by heart.  

A note appended to the end of the story comes from Knickerbocker insisting that every word of the story is true. He has spoken to Rip Van Winkle himself and seen a document verifying the veracity of the story, so the reader has no reason whatsoever to doubt it. 

A postscript is included, supposedly from notes made by Knickerbocker about the indigenous folklore of the region concerning both the spirits that manifest the weather and those that live in the Catskill Mountains.