Tom Crick, fifty-two years old, has been history master for some thirty years in a secondary school in Greenwich, in a sense the place where, in a world that sets its clocks according to Greenwich Mean Time, time begins. Tom has been married to Mary for as long as he has been teaching, but the couple have no children.
The students in Tom's school have grown increasingly scientifically oriented, and the headmaster, a physicist, has little sympathy for Tom's subject. One of Tom's students, Price, questions the relevance of learning about historical events. The youth's scepticism causes Tom to change his teaching approach to telling tales drawn from his own recollection. By doing so, he makes himself a part of the history he is teaching, relating his tales to local history and genealogy. The headmaster, Lewis, tries to entice Tom into taking an early retirement. Tom resists this because his leaving would mean that the History Department would cease to exist and be combined with the broader area of General Studies.
Tom's wife is arrested for snatching a baby. The publicity that attends her arrest reflects badly on the school, and Tom is told that he now must retire. In response, he uses his impending forced retirement as an excuse to unfold a story to his students. The pivot of Waterland focuses on both the past in 1937, and the present time thirty years after - all related through the eyes of Dick.
A wide part of the novel is formed by the basis of some three hundred years of local - including family - history, which relates to the broader historical currents of past centuries. Much of the plot centers on Tom's tumultuous relationship with Mary, both as teenagers (which in turn shows the growing hatred and jealousy of Tom's mentally handicapped brother Dick, partly due to their rivalry over Mary's affections), and after their marriage. Mary lives close to his family on a farm close to where Tom's father, a lock-keeper, has a home with his two sons in the lock-keeper's cottage, beside a tributary of the Great Ouse. Tom's mother dies when he is eight years old, Mary's own mother having died during her birth, resulting in a rigid religious upbringing from her father throughout her childhood. As she matures, her interest in men grows, and she and Tom slip into an illicit relationship, which is marred by Dick's resentment of them, and the subsequent discovery that she is pregnant.
Dick asks Mary if he is the father, thinking if he is he will be able to have some control over his strained friendship with Mary, forcing her to devote a part of herself to him. Mary lies to him, telling him that Freddie Parr is the father. Dick, distraught at this information, struggles with a drunken Freddie, who is unable to swim, and pushes him into the river. Tom's father who pulls Freddie from the sluice, not realising that his drowning is anything but accidental, as the coroner's inquest finally finds. When Mary fails to provoke a miscarriage, she and Tom - who is the father of the child - go to an old crone, who performs a dangerous abortion that leaves Mary sterile. Her father forces her into seclusion, and for three years she remains isolated. The two fathers finally agree to bring their children together again; unknown to them, Tom, away fighting in World War II, has already written to Mary. When he comes home, the two marry, and Tom begins his teaching career while Mary takes a position in an old persons’ home.
The novel returns to the present day, with Tom's growing horror over the child - who Mary believes is a gift from God - forcing him to take action and return it to the real mother, despite his wife's pleas. Obviously unstable and suffering from a pain that has been festering since her abortion all those years ago, Mary is arrested after the baby is returned. Tom is later informed of her commitment to a mental institute.
The plot closes on a final flashback, which shows Dick's breakdown following the revelation that he was born out of incest to Tom's mother and his grandfather, part of the reason his adoptive father has never really accepted him or valued him as he does Tom. Dick becomes inebriated with bottles of drink stashed in an old chest from his real father - which also coincidentally held the letters revealing his true parentage - and runs away on his motorbike. Frantic, his family coerce friends into letting them have the use of a boat, and eventually find Dick several miles away, about to jump into the water. Despite pleas that he will finally be valued as a surrogate son and an equal to Tom, Dick throws himself in and never resurfaces - his death haunting Tom for the rest of his life.
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