“The Sandman” begins with a letter from Nathaniel, a student living in Italy, to his friend Lothaire. Nathaniel apologizes for the long delay since his last letter and assures Lothaire he misses him and his sister, Clara. Intense feelings of foreboding have come over Nathaniel and occupied his attention. Before explaining further, Nathaniel worries that Lothaire will think him insane. Recently, a salesman named Coppola came to Nathaniel’s door, and Nathaniel threatened him. Nathaniel’s angry response resulted from an incident that occurred many years prior. During his childhood, Nathaniel rarely saw his father. However, the family ate late dinners together. At bedtime, Nathaniel’s mother would say, “The Sandman is coming!” She describes the Sandman as an imaginary person who sprinkles sand in children’s eyes to make them sleepy. A nurse who cares for Nathaniel’s sister tells him a more gruesome interpretation of the story in which the Sandman throws sand in the eyes of naughty children. This causes the children’s eyes to pop out of their heads, and the Sandman carries the eyes away and feeds them to a nest of birds he keeps in a crescent moon. 

Nathaniel’s fascination with the Sandman persists even after his mother moves him out of the children’s nursery and into a bedroom of his own. At night, Nathaniel hears strange noises coming from the stairs and from his father’s study, which he associates with the arrival of the Sandman. One night, he sneaks into his father’s room after pretending to go to bed. He sees his father performing a strange experiment with a family friend named Coppelius, whom Nathaniel infers must be the Sandman. Described as monstrous and ogre-like in appearance, Coppelius frightens the children during his regular visits. Nathaniel believes that Coppelius enjoys frightening the children, and even Nathaniel’s mother dislikes him. Nathaniel’s father, however, treats Coppelius with awe and respect, and he insists that Coppelius be treated as an honored guest. Nathaniel witnesses his father and Coppelius performing a strange experiment. To Nathaniel, it appears Coppelius and his father are taking hot material from a fire and turning it into faces without eyes. 

Nathaniel screams in horror and falls to the floor where Coppelius grabs him and shouts that he must have eyes. He grabs a handful of hot ashes from the hearth to throw them into Nathaniel’s eyes, but Nathaniel’s father intervenes. Coppelius pulls at Nathaniel’s arms and legs, appearing to twist his hands and feet off his body. Nathaniel loses consciousness and later awakes in his bed with his mother standing over him. The experience leaves Nathaniel bed-bound with a high fever and delirium for several weeks. The following year, during another visit by Coppelius to the family home, an explosion occurs during the night, killing Nathaniel’s father. Shortly thereafter, Coppelius disappears from the area. Nathaniel confesses that he believes the salesman who came to his door is Coppelius under the alias of Giuseppe Coppola. 

The next section of the story is a letter to Nathaniel from Clara, Lothaire’s sister and Nathaniel’s sweetheart, to Nathaniel, explaining that she intercepted his letter to Lothaire. She provides logical explanations for everything that Nathaniel saw and heard as a child. She assures him that Lothaire taught her that evil sometimes comes to people in the form of an imaginary person who tries to convince them to do evil things. She promises to protect him in spirit from Coppola, Coppelius, and the Sandman. In a subsequent letter to Lothaire, Nathaniel explains that he no longer believes Coppola and Coppelius to be the same person because he has become acquainted with a man who has known Coppola for several years. The man, a physics professor named Spalanzani, told him that Coppola left the area, but Nathaniel continues to worry about him. On one visit to Spalanzani’s home, Nathaniel sees a beautiful young woman sitting by the window, and her strange stillness both mesmerizes and disconcerts him. Nathaniel learns that she is Spalanzani’s daughter Olympia, and she never leaves the home. Nathaniel closes the letter by promising he will feel better in two weeks when he visits Clara.

An unnamed person who claims to be a friend of Nathaniel takes over the narration, hinting that something bizarre has happened to Nathaniel. Since the narrator cannot find the words to begin his story, he starts with three letters provided by Lothaire to relay events. Nathaniel’s mother has taken in Lothaire and Clara following the death of Nathaniel’s father and raises them alongside Nathaniel. Clara and Nathaniel fall in love before Nathaniel leaves to study at university. When Nathaniel returns to Clara following his last letter, he forgets all about Coppola. However, everyone notices that Nathaniel seems somehow changed. Nathaniel’s writing becomes morbid, and his relationship with Clara deteriorates. Hoping to entertain Clara, Nathaniel writes a poem about a young couple in love that ends with the woman dying. Clara begs him to throw the poem in the fire and stop his strange behavior.

Nathaniel lashes out, calling Clara an automaton and running from the room as Clara exclaims that he never loved her. Angered, Lothaire challenges Nathaniel to a duel, but before they can draw swords, Clara begs them to stop. Nathaniel’s true love for Clara returns and he begs for forgiveness. The three friends reconcile. Returning to school, Nathaniel learns that a fire destroyed his lodgings, but his friends salvaged his belongings and moved them to a room directly across from Spalanzani’s home. The window of Nathaniel’s new apartment looks directly into Olympia’s room. One night while Nathaniel writes a letter to Clara, Coppola visits once again. This time, having been assured that Coppelius and Coppola are different people, Nathaniel buys a small telescope that Coppola calls “pretty eyes.” On a whim, Nathaniel uses the telescope to look at Olympia and falls in love with her. Coppelius demands money for the telescope, then laughs as he walks away. Nathaniel is unable to finish his letter to Clara because he keeps grabbing the telescope to look at Olympia. One day, the curtain is closed, and Nathaniel obsesses over seeing Olympia again. 

Spalanzani hosts a party at his house to introduce Olympia to society and Nathaniel is invited. At the party, a finely dressed Olympia plays the harpsichord, sings, and dances. From his seat in the back row, Nathaniel takes out his telescope to see Olympia better. Only Nathaniel is enraptured by her actions. The other guests regard her as something of a curiosity and are amused or bewildered by Nathaniel’s ardor for her. He sits close to her until everyone else leaves the party. Spalanzani tells Nathaniel he is welcome to visit whenever he wishes. He asks how a smart man like Nathaniel could develop feelings for a doll. Nathaniel argues that Spalanzani simply isn’t intelligent enough to recognize Olympia’s beauty, and Spalanzani, sympathizing with Nathaniel, wishes him well. Infatuated with Olympia, Nathaniel forgets about his mother, Lothaire, and even Clara.

Nathaniel arrives at Spalanzani’s house one day, intent on proposing to Olympia and hears Spalanzani and someone he thinks is Coppelius fighting. Upstairs, he finds Spalanzani and Coppola fighting with Olympia caught between them. Coppola wrenches Olympia away from Spalanzani and uses her to knock the professor against his table, breaking several glass vials and bottles. As Coppola flees with Olympia swung over his shoulder, Nathaniel sees that she is in fact a doll with empty sockets where her eyes should be. Spalanzani, lying on the floor surrounded by shards of broken glass curses Coppola for stealing his automaton and asks why Nathaniel is not pursuing him. Nathaniel sees Olympia’s glass eyes lying on the floor staring at him. Spalanzani grabs the eyes and begins to ramble. In a rage, Nathaniel attacks Spalanzani. Several people pull Nathaniel off Spalanzani. Still raging after the encounter, Nathaniel is sent to an asylum. 

Nathaniel awakens in his bed at home with Clara standing over him and Lothaire and his mother nearby. Some days later, the four of them go to the city to receive an unexpected inheritance, and Nathaniel and Clara decide to go into a tall building to enjoy the view. Clara points out something in the distance. Nathaniel takes out the telescope to look and in doing so views Clara through the lens. He flies into a rage and tries to throw Clara over the ledge. Hearing Clara’s screams, Lothaire arrives to rescue her, and he punches Nathaniel, who continues to yell nonsense as people gather and stare. Coppelius appears in the crowd, watching the scene joyfully and predicting that Nathaniel will come down on his own so no one needs to help. Lothaire carries Clara down as Nathaniel throws himself over the edge of the gallery and falls to his death in the square. Coppelius turns and vanishes in the crowd. In the story’s final lines, Clara is married and lives a quiet, happy life in the country with her husband and two children.