Just before the start of the story, Voldemort, the most powerful evil wizard in living memory, killed Harry's parents but mysteriously vanished after trying to kill Harry. While the wizarding world is celebrating Voldemort's downfall, Professor Dumbledore, Professor McGonagall and Hagrid place the one year-old orphan in the care of his Muggle (non-wizard) aunt and uncle, Vernon and Petunia Dursley.
For ten years, they and their son Dudley treat Harry as a drudge and whipping boy. Shortly before Harry's eleventh birthday, a series of letters arrive, addressed to Harry but destroyed by his uncle before Harry can read them. As a result, a torrent of letters pour into the house through every opening, however small, and to escape this, Vernon Dursley takes the family to a lonely island. As they are settling in, Hagrid bursts through the door to tell Harry what the Dursleys have kept from him: Harry is a wizard and has been accepted at Hogwarts for the next year.
Hagrid takes Harry to Diagon Alley, a magically-concealed shopping precinct in London, where Harry is bewildered to discover how famous he is among wizards as "the boy who lived." He also finds that in the wizarding world he is quite wealthy, since a bequest from his parents has remained on deposit at Gringotts Bank. Guided by Hagrid, he buys the books and equipment he needs for Hogwarts - and finds that the only wand that works well for him is effectively the twin of Voldemort's.
A month later, Harry leaves the Dursleys' home to catch the Hogwarts Express from King's Cross railway station. There he is befriended by the Weasley family, who show him how to pass through the magical wall to Platform 9¾, where the train is waiting. While on the train Harry makes friends with Ron Weasley, who tells him that someone tried to rob a vault at Gringotts. Another new pupil, Draco Malfoy, accompanied by his beefy sidekicks Crabbe and Goyle, offers to advise Harry, but Harry dislikes Draco's arrogance and prejudices.
Before the term's first dinner in the school's Great Hall, the new pupils are allocated to houses by the magical Sorting Hat. The Hat assigns most pupils instantly – particularly when sending Draco, Crabbe and Goyle to Slytherin – but has a telepathic discussion with Harry about whether the boy's ambition would make Slytherin the best choice for him. When Harry silently but vehemently objects, the Hat sends him to join the Weasleys in Gryffindor. While Harry is relaxing after dinner, Professor Snape glares at him and he feels a stab of pain in the scar Voldemort left on his forehead.
After a traumatic first Potions lesson with Snape, Harry and Ron visit Hagrid, who lives in a rustic house on the edge of the Forbidden Forest. There they learn that the attempted robbery at Gringotts happened around the time that Harry was withdrawing some money, and Harry remembers Hagrid leaving the bank with a small package.
During the new pupils' first flying lesson, Neville Longbottom breaks his wrist and Draco takes advantage to throw the forgetful Neville's fragile Remembrall high in the air. Harry gives chase on his broomstick, catching the Remembrall inches from the ground. Professor McGonagall dashes out and appoints him as Gryffindor's new Seeker.
Draco tricks Ron and Harry into a midnight excursion, and Neville and the bossy Hermione Granger accompany the pair to keep them out of trouble. All four accidentally enter a forbidden corridor and find a room containing a huge three-headed dog. The group beats a hasty retreat, and only Hermione notices that the dog is standing over a trap-door. Harry concludes that the monster guards the package Hagrid retrieved from Gringotts.
After Ron criticises Hermione's ostentatious proficiency in Charms, she hides in tears in the girls' toilet. Professor Quirrell reports that a troll has entered the dungeons. While everyone else is evacuating the building, Harry and Ron rush to warn Hermione. The troll corners Hermione in the toilet but, while Harry stabs it with his wand, Ron knocks out the troll with its own club, using the levitation spell Hermione demonstrated in Charms. When a posse of professors arrives, Hermione takes the blame for the battle and becomes a firm friend of the two boys.
The evening before Harry's first Quidditch match, he sees Snape receiving medical attention from Filch for a bite by the three-headed dog. During the game, Harry's broomstick goes out of control, endangering his life, and Hermione notices that Snape is staring at Harry and muttering. She dashes over to the Professors' stand, knocking over Professor Quirrel in her haste, and sets fire to Snape's robe. Harry regains control of his broomstick and catches the Golden Snitch, winning the game for Gryffindor. Hagrid refuses to believe that Snape was responsible for Harry's danger, but lets slip that he bought the three-headed dog, and that the monster is guarding a secret that belongs to Professor Dumbledore and someone called Nicolas Flamel.
Harry and the Weasleys stay at Hogwarts for Christmas, and one of Harry's presents, from an anonymous donor, is an Invisibility Cloak. Harry uses the Cloak to search the library's Restricted Section for information about the mysterious Flamel, has to evade Snape and Filch after an enchanted book shrieks an alarm, and slips into a room containing the Mirror of Erised, which shows his parents and several of their ancestors. Harry becomes addicted to the Mirror's visions and is rescued by Professor Dumbledore, who explains that it shows what the viewer most desperately longs for.
When the rest of the pupils return for the next term, Draco plays a prank on Neville, and Harry consoles Neville with a sweet. The collectible card wrapped with the sweet explains that Flamel is a 665 year-old alchemist who possesses the only known Philosopher's Stone, from which can be extracted an elixir of life. A few days later Harry notices Snape sneaking towards the outskirts of the Forbidden Forest. There he half-hears a furtive conversation about the Philosopher's Stone, in which Snape asks Professor Quirrell if he has found a way past the three-headed dog and menacingly tells Quirrell to decide whose side he is on. Harry concludes that Snape is trying to steal the Stone and Quirrell has prepared a series of defences for it.
The three friends discover that Hagrid is raising a baby dragon, which is against wizard law, and arrange to smuggle it out of the country around midnight. Draco arrives, hoping to raise the alarm and get them into trouble, and Neville comes to warn them of Draco's mischief. Although Ron is bitten by the dragon and is sent to the infirmary, Harry and Hermione spirit the dragon safely away. However, they are caught, and Harry loses the Invisibility Cloak. As part of their punishment, Harry, Hermione, Draco and Neville are compelled to help Hagrid to rescue a badly-injured unicorn in the Forbidden Forest. They split into two parties, and Harry and Draco find the unicorn dead, surrounded by its blood. A hooded figure crawls to the corpse and drinks the blood, while Draco screams and flees. The hooded figure moves towards Harry, who is knocked out by an agonising pain spreading from his scar. When Harry regains consciousness, the hooded figure has gone and a centaur, Firenze, offers to give him a ride back to the school. The centaur tells Harry that drinking a unicorn's blood will save the life of a mortally injured person, but leave them only barely alive. Firenze suggests Voldemort drank the unicorn's blood to gain enough strength to make the elixir of life from the Philosopher's Stone, and regain full health by drinking that. On his return, Harry finds that someone has slipped the Invisibility Cloak under his sheets.
A few weeks later, while relaxing after the end-of-session examinations, Harry suddenly wonders how something as illegal as a dragon's egg came into Hagrid's possession. The gamekeeper says he was given it by a hooded stranger who bought him several drinks and asked him how to get past the three-headed dog, which Hagrid admits is easy – music sends it to sleep. Realising that one of the Philosopher's Stone's defences is no longer secure, Harry goes to inform Professor Dumbledore, only to find that the headmaster has just left for an important meeting. Harry concludes that Snape faked the message that called Dumbledore away and will try to steal the Stone that night.
Covered by the Invisibility Cloak, Harry and his two friends go to the three-headed dog's chamber, where Harry sends the beast to sleep by playing a flute. After lifting the trap-door, they encounter a series of obstacles, each of which requires special skills possessed by one of the three, and one of which requires Ron to sacrifice himself. In the final room Harry, now alone, finds Quirrell, who binds his hands and feet tightly with magical ropes. Quirrell admits that he let in the troll that tried to kill Hermione in the toilet, and that he tried to kill Harry during the first Quidditch match but was knocked over by Hermione. Snape had been trying to protect Harry and suspected Quirrell. Quirrell serves Voldemort and, after failing to steal the Philosopher's Stone from Gringotts, allowed his master to possess him in order to improve their chances of success. However the only other object in the room is the Mirror of Erised, and Quirrell can see no sign of the Stone. At Voldemort's bidding, Quirrel unties Harry and forces him to stand in front of the Mirror. Harry feels the Stone drop into his pocket and tries to stall. Quirrell removes his turban, revealing the face of Voldemort on the back of his head. Voldemort/Quirrell tries to grab the Stone from Harry, but simply touching Harry causes Quirrell's flesh to burn. After further struggles Harry passes out.
He awakes in the school hospital, where Professor Dumbledore tells him that he survived because his mother sacrificed her life to protect him, and Voldemort could not understand the power of such love. Voldemort left Quirrell to die, and is likely to return by some other means. Dumbledore had foreseen that the Mirror would show Voldemort/Quirrell only themselves making the elixir of life, as they wanted to use the Philosopher's Stone; Harry was able to see the Stone in the Mirror because he wanted to find it but not to use it. The Stone has now been destroyed.
Harry returns to the Dursleys for the summer holiday, but does not tell them that under age wizards are forbidden to use magic outside Hogwarts.