The Phantom Tollbooth begins by introducing Milo, a young boy, bored by life, who has no interest or motivation to learn or do anything. He notices a mysterious package in his room containing a tollbooth and a map. Deciding he has nothing better to do, he builds the tollbooth, climbs into his toy car, and drives through. Milo immediately finds himself driving along a mysterious road in a strange environment. Before long, he comes to Dictionopolis, a strange city inhabited by King Azaz, and citizens who have a fascination with words.
As Milo enters this imaginary land of Dictionopolis, he quickly realizes that everything is peculiar - including his encounter with a talking watchdog named Tock. Tock continues on the voyage with Milo to Dictionopolis where they discover a kingdom of words and letters: five gentlemen provide synonyms of words, a Spelling Bee spells out words, and people eat words.
Spelling Bee and Humbug, a foolish people-pleaser, get into an argument in the marketplace. During the quarrel, Humbug accidentally knocks over all the tables in the marketplace, which causing chaos. Milo is accused by Officer Shrift of being the culprit, and is sentenced to prison for six million years. In prison, Milo and Tock meet Faintly Macabre, the not-so-wicked “Which”. Faintly Macabre shares the story of how everything came to be: a young prince sailed the Sea of Knowledge, built the Kingdom of Wisdom, and had a wife and two sons. These sons went their separate ways and created two lands, Dictionopolis and Digitopolis. A rift occurred between the family as the two sons attempted to outdo the other, one swearing that words were better, and the other swearing that numbers were better. The king also had adopted two beautiful girls, Rhyme and Reason. These girls grew up in Wisdom and were able to solve all disagreements and problems that were brought to them. The two brothers became outraged when Rhyme and Reason would not claim one of them as correct, so they banished the sisters to the Castle in the Air. Milo decides that he is going to help set Rhyme and Reason free.
Milo and Tock easily escape the prison, and, much to their surprise, are welcomed back into the kingdom. At the king’s banquet, Milo reiterates his wish to rescue the princesses. Humbug agrees to accompany Milo and Tock on the long, treacherous adventure through distant kingdoms, including Digitopolis and Mountains of Ignorance.
During their voyage, Milo, Tock, and Humbug, meet many strange characters and learn about the mysteries of the land: people growing down, an orchestra that controls the light in the sky, unpleasant sounds being created and captured, and the Silent Valley where no sounds are heard at all. Milo presses forward to rescue the princesses who will be able to solve all the land’s problems.
The three travelers find their way to Digitopolis, the land of numbers. Here, equally bizarre and magical occurrences push Milo to reach the princesses and set everything right. It isn’t easy; demons and giants chase Milo, Tock, and Humbug to the gates of the Castle in the Air, and are only stopped by the Armies of Wisdom. Everyone in the land congratulates the trio on the impossible success of their quest, with a parade and a three day carnival. At the end of the carnival, Milo is told he has to say goodbye and return home. A sad and disappointed Milo says farewell to his new friends.
When Milo returns home, he is sure his parents will be worried about him because he has been gone for so long. It turns out however, Milo had only been gone an hour. He returns to school the next day, bored as ever. When he returns to the tollbooth for another adventure, he finds has been replaced with a letter advising him that he can now travel to distant lands on his own. At first, Milo sits sadly at the window, but soon he opens his eyes to the possibilities of the world in front of him.