The story opens with a note that the tale was found written among the papers of a deceased man named Diedrich Knickerbocker. The transcript tells the story of a young man named Ichabod Crane, who was the schoolteacher in a place called Sleepy Hollow thirty years earlier, around the year 1790. Sleepy Hollow is part of the larger farming community of Tarry Town. It is one of the oldest Dutch settlements in New York and is situated along the picturesque banks of the Hudson River. Residents are fond of repeating stories of supernatural sightings and unusual occurrences experienced in Sleepy Hollow, and the area is considered both enchantingly peaceful and terrifyingly haunted. The most frightening of these is the tale of the Headless Horseman of Sleepy Hollow, who is believed to be the ghost of a Hessian soldier decapitated by a cannon ball during the American Revolution. The Headless Horseman is reported to ride swiftly through Sleepy Hollow at night as if reenacting the battle that took his head, before returning at daybreak to the churchyard where he is buried.

While Sleepy Hollow’s inhabitants are mostly descendants of the early Dutch settlers, Ichabod Crane is notably an outsider, from the state of Connecticut. He is extremely tall, thin, and lanky, with a flat head and a long beak-like nose, giving him the appearance of a scarecrow. Despite his thin appearance, he has a voracious, seemingly bottomless appetite. He is a strict but mostly fair teacher, although he more often punishes the stronger boys while sparing the weaker ones. Since his salary as a schoolteacher is very small, his students’ families board him for a week at a time. Ichabod prefers the homes of students whose mothers are known to be good cooks as well as those who have pretty older sisters. To further earn his keep, Ichabod performs light farm work and assists with taking care of babies and small children. Ichabod is also the choir master and earns additional money giving singing lessons. He considers himself a talented singer and is known to sing loudly each Sunday during church services. 

Ichabod is a firm believer in witchcraft and the supernatural, a belief which deepens as he spends more time in Sleepy Hollow. His favorite book is “History of New England Witchcraft” by Cotton Mather, and he knows it nearly by heart as he rereads it in his free time. He enjoys spending evenings sharing and listening to ghost stories and other supernatural tales with the older women of the town. He is particularly enthralled by the story of the Headless Horseman. However, Ichabod is also afraid of the dark and frightens easily on his evening walks home after these conversations.  

Ichabod enjoys being surrounded by the young women of the town and impressing them with his education and refined taste. In particular, he hopes to court Katrina Van Tassel, the beautiful and flirtatious daughter of a wealthy farmer. Ichabod is drawn to Katrina not only for her good looks and charm, but also because she is an only child and is set to inherit her father’s wealth. He dreams about all the delicious ways the Van Tassel family’s farm animals could be cooked, and he fantasizes about selling the estate and moving to the frontier with Katrina if they marry. Katrina, however, is already being courted by Abraham Van Brunt, known by his nickname, “Brom Bones.” She is rumored to be encouraging him, and his horse is often seen at the Van Tassel farm on Sunday evenings. Popular and good-humored, Brom is locally recognized for his physical strength, his prowess as a horseman, and his penchant for playing pranks. His reputation has successfully intimidated the rest of the young men in town away from Katrina, except for Ichabod. Ichabod does not openly challenge Brom for Katrina’s heart, knowing that Brom would beat him in a physical fight. Instead, Ichabod gives Katrina private singing lessons twice a week. In this way, he can spend time with her alone, without her parents present. This enrages Brom, who retaliates by playing various pranks on Ichabod. He and his friends break into the schoolhouse and turn all the furniture upside down. They stop up the schoolhouse chimney so it fills with smoke. Brom also trains a dog to howl whenever Ichabod sings and then gifts it to Katrina.

One autumn afternoon, Ichabod, along with the rest of the town, receives an invitation to a party at the Van Tassel farm. In his excitement, Ichabod dismisses his students an hour early so he can get ready. He spends extra time on his appearance before leaving, fixing his hair and putting on his only suit. To impress Katrina, he borrows a horse named Gunpowder from his neighbor, Hans Van Ripper. Gunpowder is an old plow horse, scruffy and grumpy, and blind in one eye. The stirrups of Gunpowder’s saddle are too high up for Ichabod’s gangly frame, and Ichabod’s knees are bent as he rides, giving him the comical appearance of a grasshopper. On his commute to the Van Tassel home, he fantasizes about the food he will eat alongside Katrina if he successfully courts her.

The party is in full swing when Ichabod arrives in the early evening. Brom is already there on his own horse, Daredevil, a strong, fast horse that no one else is able to ride. The young men and women are all dressed up, but Ichabod skips socializing and goes directly to the food. Ichabod spends a long while enjoying the many delicious savory and sweet dishes that have been put out for the guests. As he eats, Ichabod becomes increasingly happy, and he fantasizes about the day he will own the farm as Katrina’s husband. Ichabod is in an extremely good mood when the music starts, and he joins the dance floor enthusiastically, as he believes he is an excellent dancer. His mood continues to improve as he dances with Katrina while Brom angrily watches.

When the dancing concludes, Ichabod joins the residents of Sleepy Hollow as they tell stories. Some of the older men tell exaggerated tales about their days as soldiers during the American Revolution. Eventually, the topic turns to stories of ghost sightings, especially the Headless Horseman. Brom jokes that he once raced the Headless Horseman, and he claims he would have won had the Horseman not disappeared in a flash of fire as he usually does once he crosses the church bridge. Ichabod shares his own, more sincere ghost stories from his hometown in Connecticut, of his nightly walks in Sleepy Hollow, and excerpts from his favorite book, “History of New England Witchcraft.” As the party winds down, Ichabod stays behind to speak to Katrina, sure that he has successfully courted her. The narrator claims not to know what is said between them but implies that Katrina rejects him. The narrator also speculates as to whether Katrina used Ichabod’s attention to make Brom jealous. Ichabod leaves the party looking dejected and crestfallen.

As Ichabod rides home in the dark, pondering all the ghost stories of the evening, he becomes increasingly spooked by the surrounding noises of the night. He prods Gunpowder to move more quickly, causing the old horse to stumble off the road. Soon after, Ichabod notices a large figure astride a horse. He slows to let the rider pass, but the rider keeps pace with him. When Ichabod finally gets a good look at him, he is horrified to see he is headless and carries his head in his lap. Terrified, Ichabod kicks Gunpowder again and the old horse begins to run. A chase ensues. Ichabod can barely hold on but feels relief when he sees the church bridge up ahead. He believes the Headless Horseman will disappear when he crosses it, just like in the stories. Ichabod looks over his shoulder as he reaches the bridge, but the horseman does not disappear. Instead, he throws his head at Ichabod, who is knocked to the ground by the blow. 

The next day, Ichabod is nowhere to be found. He does not show up at the schoolhouse and Gunpowder has returned alone without his saddle to Hans Van Ripper’s farm. The townspeople conduct a search that leads them to the church bridge. They find Ichabod’s hat and a smashed pumpkin, but no Ichabod. Ichabod’s disappearance soon becomes legend among the Sleepy Hollow residents. Some believe he was taken by the Headless Horseman. Others suspect Brom played a trick on Ichabod. Brom, who eventually marries Katrina, always laughs whenever the part about the smashed pumpkin is told. Years later a visitor to the area swears that Ichabod is alive, living in Manhattan, and has made a successful career as a lawyer, politician, writer, and judge.  

The story concludes with a postscript from Diedrich Knickerbocker, who claims to have transcribed the story as he heard it told. Knickerbocker describes the storyteller as an older country gentleman with a good sense of humor. The story is received with some laughter, except by one other older gentleman, who is tall and very serious. He questions what the moral of the story is supposed to be. The storyteller gives three lessons. First, to take a joke as we find it. Second, competing with someone who is sure to beat you is foolish. And thirdly, that some losses in life lead to better opportunities in the future. The postscript suggests that the storyteller may be Brom, and the other man Ichabod, but leaves this open to interpretation.