Monte (Morgan Freeman) has had a successful career writing Western novels, but he has grown disenchanted and drunk in his later years since his wife died. He comes to the small resort town of Belle Isle for the summer to dogsit at a cottage and be left alone.
He has an attractive next-door neighbor named Charlotte, mother to three daughters ranging from 6 to 15; they have relocated there from Manhattan while she is going through a divorce from the girls' father. The middle child, Finn, is building a wooden raft to sail out to a small island in the nearby harbor.
Though confined to a wheelchair, Monte manages to get to town by bus to buy bourbon. He is brusque but not unfriendly to the locals, including a man who invites him to the memorial for a neighbor who has suddenly died.
Monte meets Finn at the memorial and she learns a little about his books, which feature a recurring cowboy hero named Jubal. Monte is asked to read a statement about the deceased man and reluctantly agrees. On the way home, he speaks to a mentally handicapped young man named Carl, whose mother has asked him to help her son socialize. Monte asks Carl to be his sidekick.
Finn asks Monte to teach her how to write stories. Monte confesses that he is not really unable to walk, rather, he is faking his condition to sue an insurance company. Finn is enraptured by his secret, until he tells her that he made up the story, which is how imagination works.
Charlotte invites Monte to dinner, where the two adults are mildly flirtatious, especially after she plays the piano. Charlotte asks him why he stopped writing, and through an allegory about Jubal, Monte explains that writing about Jubal had allowed him to do what he could not do in real life, yet he is not that man anymore.
Finn wants more lessons in imagination and storytelling, so Monte keeps asking her to look at places to describe what she does not see. At first the girl does not understand this and becomes frustrated, but she slowly begins to fill in details that are not evident in what she does see. One day, she makes up a story based on an experience she had with Carl, and Monte assures her that now she is learning to write.
Finn's younger sister Flora has a big birthday party, and despite her hopes, their father does not come to visit as he promised. Monte tries to cheer her up with a story he has written about an elephant and a family of mice. Charlotte reads the story to Flora that night, and realizes it is an allegory about Monte and her family. She thinks aloud that Monte likes her.
Finn finishes her raft and rows out to the island with Carl and her big sister, where she explores some trails and finds an old lunchbox hidden under a tree, which they soon learn contains writings from Charlotte when she was about 12.
Finn learns that Monte has been writing stories for Flora and becomes quite upset with him, wanting to know why he will not continue writing about Jubal. Monte goes off to write, but composes another story that intimates he is falling in love with Charlotte.
Monte's editor comes to visit after trying to contact him for many weeks, and is surprised to find that Monte is sober. As it turns out, a famous Hollywood actor shows up as well, wanting to buy the rights to Jubal's stories so he can star as the character. Monte replies that the character is not for sale, and responds to his editor's disappointment by saying that his life is too good right now to complicate it with such matters.
Monte dreams of sitting by the water with Charlotte, drinking wine in the moonlight, poetically pitching woo to her. He stands and dances with her, and they kiss.
The next day, Charlotte asks Monte to look after the girls for the day. Finn is still mad at him, so he tells her the story of his younger days on the minor league baseball circuit. On the day he was called up to the majors, he was hit by a drunk driver in a car accident, which is how he became paralyzed. His wife stayed with him, and he created Jubal to fulfill the life he could not live. He says that although his wife passed away six years ago, Finn has restored his legs, allowing him to dance again in his mind.
Charlotte returns late that evening after the girls have gone to bed and shares a quiet moment with Monte. She admits she has become greatly fond of his stories, and now that Monte plans to leave after the summer, she wishes they had danced in the moonlight. The couple share a pause signifying the recognition of their suppressed affection for each other, and then just as she is leaving, Charlotte gives Monte a long sweet kiss.
With the summer ending and the town closing up for the season, Monte decides to quit drinking and gives Carl his cowboy hat, encouraging him to be himself and not a sidekick.
Finn, who had been reading one of Monte's books with the last page missing, is thrilled when he gives her a retyped revision of the last page. He returns the money she gave him for the writing lessons at the beginning of summer, because she has been the one teaching him.
The girls and Charlotte say tender goodbyes to Monte, and Flora gives him a painting of an elephant as he leaves.
That fall, the girls have acclimated to their new schools, and Charlotte has planted pumpkins in their garden. She gets a message from Monte telling her that he relented and sold the rights to Jubal, then used the money to buy a nice place to write.
Charlotte then realizes that the nice place Monte bought is the cottage he had lived in over the summer. She and her daughters run over to see him, with the utmost jubilation.