Misty of Chincoteague begins with an account of the wreck of a Spanish galleon on the shores of Assateague Island off the coast of Virginia. The ponies in the hold of the galleon swim to Assateague and become feral as the years and eventually the centuries pass.[1]
The book then tells the story of two orphan children, Paul and Maureen Beebe, who move in with their grandparents after their parents die.[4] Paul and Maureen work to earn money to buy a Chincoteague pony mare named the Phantom, who has escaped the roundup men on Pony Penning Day for the past two years. Paul and Maureen save enough to buy Phantom, and Paul is able to capture her on the roundup because she is slowed down by her new foal, Misty. However, a man from the mainland buys the pair of ponies for his son before Paul and Maureen can give their money to the fire chief. Paul and Maureen are distressed, but they end up being able to buy Phantom and Misty because the original buyer's son won a colt in the yearly raffle and then decided he didn't need another pony, and chose the colt from the raffle.[1]
Paul and Maureen eventually break the Phantom to ride, and the next year Paul races her on Pony Penning Day. Phantom wins, but the next day becomes distressed when she sees the herd she once belonged to, led by a stallion called Pied Piper, being released to swim back to Assateague. Paul releases Phantom, and she gallops to join Pied Piper and the herd as they return to freedom on their ancestral island. Misty remains behind with Paul and Maureen.[1]