The story is told from the viewpoint of fourteen-year-old Charlie Fox and centres around his father Allie, a brilliant inventor ("with nine patents, six pending") who becomes increasingly critical of American consumerism, education and culture: "We eat when we’re not hungry, drink when we’re not thirsty, buy what we don’t need, and throw away everything that’s useful. Don’t sell a man what he wants—sell him what he doesn’t want. Pretend he’s got eight feet and two stomachs and money to burn. That’s not illogical—it’s evil".
Allie decides to move his family from Hatfield, Massachusetts to escape the influence of America and the world war he fears is imminent, to enjoy a simpler life in La Mosquitia on the eponymous Mosquito Coast of Honduras. They travel in their pick-up truck to Baltimore and after giving away their truck to a tramp they board a banana boat to La Ceiba. During a violent storm Allie repairs a bilge pump and has several run-ins with Reverend Spellgood who is travelling with his family to his Mission in Honduras. His daughter Emily flirts with Charlie.
At La Ceiba Allie buys a tiny settlement called Jeronimo from a drunk German. They then travel up the coast via motor launch to Santa Rosa by which time Allie, through force of personality, has taken over the launch from its captain, Mr. Haddy and steers it up the Aguán River to Jeronimo. On arrival Allie inspires the local Creoles and Zambus and over the coming weeks they help him transform the overgrown settlement into a thriving community. He builds a huge ice-making machine called 'Fat Boy' powered by hydrogen and ammonia, and transports the ice it producesfarther up the river to isolated tribesmen, only to find to his disgust that missionaries have already reached them and 'corrupted' them to the ways of the West. He then mounts another expedition to take ice overland into Olancho, but the ice melts on the journey. They arrive at a small settlementand meet a group of Indians and three 'skinny men' who they take to be slaves. On return to Jeronimo they find the settlement nearly deserted. A missionary, who earlier Allie had driven away, had returned and persuaded most of the Creoles to leave with him. Soon afterwards, the three 'slaves' from Olancho arrive with guns and threaten Allie's domain. He tricks them and locks them in 'Fat Boy' intending to freeze them to death, but their gunfire causes an explosion which kills the three gunmen, destroys Jeronimo and pollutes the river.
Escaping the explosion, Allie leads his family and Mr. Haddy through the jungle to Sico River, determined to move even further from civilization, and become less dependent on technology. They borrow a boat from a Miskito and float down to Brewers Lagoon where Mr Haddy's mother lives in a nearby village. Mr Haddy gave directions to the Laguna Miskita, 'it so small, when you gets there you ain't believe you there', which sounds ideal to Allie. On arrival they convert an abandoned dugout into a hut, beachcombing for materials (including an outboard motor which Allie repairs) and planting crops on the shore; total self-sufficiency. Then the rainy season starts, and a storm surge from a tropical cyclone washes away all their work. Mr Haddy arrives under cover of night and gives Charlie a drum of gasoline and spark plugs, which he knows Allie would not accept; Charlie hides them on the shore. Allie finds them and determines to use the supplies to sail upstream, against the flow "that Mosquito Coast is a dead loss...there's death down there...Everything broken, rotten and dead is on that stream and being pulled down to the coast... I've been fighting the current all along". Charlie and Jerry want to return to America, but Allie tells them that it has been destroyed.
The family heads up the Patuca River, passing several abandoned villages destroyed by the recent tropical storm. Allie bullies his family into agreeing to his plans to head farther away from civilization, and they hear about a village called Guampo far up the river. When they arrive, it's the Spellgoods' mission settlement complete with harbor, landing strip and church.
That night Charlie and his brother Jerry swim ashore and contact Emily. They arrange to borrow the Spellgoods' jeep and escape back to the coast after learning that America has not been destroyed. On returning to the boat they try to persuade their mother to drive them, only to find that their father has also gone ashore. Determined to save the locals from the influence of the Spellgoods, he blows up the airplane and the generator and returns to the boat, but is shot in the neck by Rev. Spellgood. The family manages to drag Allie to the jeep with and make it to the coast, where Allie dies.
Mr Haddy hears of Allie's death and takes the family back to La Ceiba, and they return to America.
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