A prologue introduces the Nicklebys, a family of country gentry enjoying a comfortable life in the serene Devon countryside until tragedy strikes with the death of their father, Mr. Nickleby (Andrew Havill](/actor/andrew-havill)). The family, consisting of nineteen-year-old Nicholas (Charlie Hunnam), his mother Catherine (Stella Gonet), and younger sister Kate (Romola Garai), faces financial ruin as Mr. Nickleby's ill-fated investments in the stock market leave them destitute. In search of support, they travel to London to seek help from their wealthy, yet cold-hearted uncle Ralph (Christopher Plummer), a notorious speculative investor. Ralph arranges for Nicholas to take up a teaching position at a horrid establishment known as Dotheboys Hall in Yorkshire and finds Kate a job as a seamstress.
Upon his arrival at the dreadful school run by the sadistic Mr. Wackford Squeers (Jim Broadbent](/actor/jim-broadbent)) and his equally cruel wife, Nicholas is horrified. This institution mirrors a prison rather than a place of learning, with children suffering daily physical, verbal, and emotional abuse. The boys are prohibited from communicating with the outside world, while all money and gifts sent by well-wishers are confiscated by Wackford, who shamelessly lavishes them upon his own children, Fanny (eather Goldenhersh) and his son. The boys sleep in cattle sheds without proper bedding, and their meager breakfast often consists of brimstone. Among the oppressed is Smike ([Jamie Bell), a crippled servant subjected to even harsher treatment.
Though Fanny quickly develops a fondness for Nicholas, her advances are met with rejection. In a cruel twist, the Squeers vent their frustrations on Smike, burdening him with increasingly brutal workloads. A bond forms between Nicholas and Smike, with Nicholas genuinely caring for the well-being of the boy. Smike manages to escape but is soon apprehended, and in a vicious punishment, Wackford mercilessly flogs him.
In an act of defiance, Nicholas eventually rebels by turning Wackford's own cane against him and escapes, taking Smike with him. As they journey towards London, they encounter a theatrical troupe led by Mr. Vincent Crummles (Nathan Lane) and Mrs. Crummles (Barry Humphries). They participate in a performance of Romeo and Juliet, but despite initial success and an invitation to stay with the troupe, Nicholas is resolute in continuing to find and protect his sister, Kate, whom he learns is in distress.
Meanwhile, Ralph receives accusatory letters from the Squeers, claiming that Nicholas assaulted Wackford and stole Mrs. Squeers’ ring, demanding compensation. Consumed by greed, Ralph plots to exploit Kate to further his own business interests. Nicholas learns that his sister has fallen victim to the harassment of the lascivious Sir Mulberry Hawk (Edward Fox), who is encouraged by Ralph to seduce her in hopes of solidifying a business deal. Newman Noggs (Tom Courtenay), Ralph’s loyal but sympathetic butler, sends word to Nicholas, expressing his disdain for Ralph's treatment of Kate.
Confronting Ralph and Sir Mulberry, Nicholas takes a stand against their lecherous ways, but Ralph becomes increasingly determined to ruin his nephew. As complications arise, Nicholas finds clerical work with the benevolent Cheeryble brothers, Charles (Timothy Spall) and Ned (Gerard Horan), who generously offer him a salary far greater than before. During this time, Nicholas becomes close to Madeline Bray (Anne Hathaway](/actor/anne-hathaway)), an artist struggling to support herself and her tyrannical father, Mr. Nigel Bray ([Dvid Bradley), who squandered their fortune.
The tension escalates when Ralph sets his sights on Madeline, hoping to manipulate her into marriage with Sir Mulberry. Tragedy strikes as Smike falls ill and dies, prompting the revelation of a long-buried family secret: Smike is revealed to be Ralph’s son, whom he believed dead. The truth unveils Ralph's dark past and the hidden cruelties he inflicted on his own child. Stricken by grief and realizing the weight of his actions, Ralph ultimately takes his own life.
In the light of these events, Kate finds happiness with Frank, the Cheeryble brothers’ nephew, while Nicholas marries Madeline and returns with her to the tranquility of Devon, where the memory of Smike is honored.
