At the beginning of the story, Manfred impatiently awaits the marriage of his sickly son, Conrad, to the princess Isabella.
They suspect that Manfred has arranged the marriage in the hope of avoiding an ancient prophecy that predicted his castle and his rulership of Otranto “should pass from the present family, whenever the real owner should be grown too large to inhabit it.”
The wedding date is set for Conrad’s birthday. On the day of the nuptials, however, Manfred’s son is nowhere to be found. In the courtyard a servant discovers that an enormous helmet has fallen from the sky and crushed Conrad to death.
Upon realizing that his only male heir is dead and his wife can no longer bear children, Manfred decides to marry Isabella himself. He approaches Isabella with this proposition.
When she refuses to marry him, Manfred seizes her, apparently intending to rape her. Fortunately, a series of supernatural events, including an appearance by the ghost of his grandfather, distract Manfred, and Isabella manages to wrestle free.
As she makes her escape to the nearby church of St. Nicholas (with the help of a peasant named Theodore), Manfred is confronted by his guards, who claim to have seen a giant armoured leg in the gallery.
Later he and his guards are joined by a group of knights seeking Isabella on behalf of her father, the Marquis of Vicenza.
Outside the castle grounds, Theodore bravely defends Isabella from a knight. He wounds the knight and discovers—much to his dismay—that the wounded knight is actually Isabella’s father, Frederic.
Together, Theodore, Frederic, and Isabella return to the castle. Frederic recovers and explains to Manfred’s wife, Hippolita, how exactly he came to be in Otranto: while away at war, Frederic had a vision warning him that his daughter was in danger.
The vision directed him to a forest where he met a hermit. The hermit directed him to a gigantic sword inscribed with a prophecy.
Manfred, suddenly observing the resemblance between Theodore and the hero Alfonso, tries again to secure Isabella’s hand in marriage. This time he proposes to Frederic that they marry each other’s daughters. At first Frederic agrees, but he is haunted by the ghost of the hermit from the forest and ultimately decides not to go through with the double marriage.
Manfred is furious—and more so after he learns that Theodore is meeting a lady in Alfonso’s tomb. Manfred, convinced that Isabella is having an affair with Theodore, sneaks into the tomb and fatally stabs the lady.
In horror, Manfred realizes that he has slain not Isabella but his own daughter, Matilda. Moments after Matilda’s death, the castle wall behind Manfred crumbles, revealing a gigantic vision of Alfonso.
The image of Alfonso declares that his grandson, Theodore, is the true heir of Otranto. Manfred thereupon reveals that his grandfather poisoned Alfonso and usurped his throne. In an attempt to atone for his wrongdoing, Manfred agrees to abdicate the throne.
The novel ends with Frederic offering Isabella’s hand in marriage to Theodore. Although he eventually agrees to marry Isabella, Theodore mourns the loss of his true love, Matilda, for many years.
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