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The novel is set in the early years of the 19th century. Silas Marner, a weaver, is a member of a small Calvinist congregation in Lantern Yard, a slum street in Northern England. He is falsely accused of stealing the congregation's funds while watching over the very ill deacon. Two clues are given against Silas: a pocket knife, and the discovery in his own house of the bag formerly containing the money. There is the strong suggestion that Silas' best friend, William Dane, has framed him, since Silas had lent his pocket knife to William shortly before the crime was committed. Silas is proclaimed guilty, however, after a drawing of lots. The woman Silas was to marry breaks their engagement and instead marries William. With his life shattered and his heart broken, Silas leaves Lantern Yard and the city for a rural area where he is unknown.

Marner travels south to the Midlands and settles near the rural village of Raveloe in Warwickshire, where he lives isolated and alone, choosing to have only minimal contact with the residents. He throws himself into his craft and comes to adore the gold coins he earns and hoards from his weaving.

One foggy night, the two bags of gold are stolen by Dunstan ("Dunsey") Cass, a dissolute younger son of Squire Cass, the town's leading landowner. Silas then sinks into a deep gloom, despite the villagers' attempts to aid him. Dunsey immediately disappears, but little is made of this by the community because it coincides with the death of the horse he was meant to be selling for his brother.

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