The story is presented by Le Fanu as part of the casebook of Dr. Hesselius, whose departures from medical orthodoxy rank him as the first occult doctor in literature. The story is narrated by Laura, one of the two protagonists of the tale.
Laura begins her tale by relating her childhood in a "picturesque and solitary" castle in the midst of an extensive forest in Styria, where she lives with her father, a wealthy English widower, retired from the Austrian Service. When she was six years old, Laura had a vision of a beautiful visitor in her bedchamber. She later claims to have been bitten on the chest, although no wounds are found on her.
12 years later, Laura and her father are admiring the sunset in front of the castle when her father tells her of a letter he received earlier from his friend, General Spielsdorf. The General was supposed to bring his niece, Bertha Rheinfeldt, to visit the two, but the niece suddenly died under mysterious circumstances. The General ambiguously concludes that he will discuss the circumstances in detail when they meet later.
Laura is saddened by the loss of a potential friend, and longs for a companion. A carriage accident outside Laura's home unexpectedly brings a girl of Laura's age into the family's care. Her name is Carmilla. Both girls instantly recognize the other from the "dream" they both had when they were young.
Carmilla appears injured after her carriage accident, but her mysterious mother informs Laura's father that her journey is urgent and cannot be delayed. She arranges to leave her daughter with Laura and her father until she can return in three months. Before she leaves, she sternly notes that her daughter will not disclose any information whatsoever about her family, past or herself, and that Carmilla is of sound mind. Laura comments that this information seems needless to say, and her father laughs it off.
Carmilla and Laura grow to be very close friends, but occasionally Carmilla's mood abruptly changes. She sometimes makes unsettling romantic advances towards Laura. Carmilla refuses to tell anything about herself or her background, despite questioning from Laura. Her secrecy isn't the only mysterious thing about her. Carmilla sleeps much of the day, and seems to sleepwalk at night. When a funeral procession passes by the two girls and Laura begins singing a hymn, Carmilla bursts out in rage and scolds Laura for singing a Christian song. When a shipment of family heirloom restored portraits arrives at the castle, Laura finds one of her ancestors, "Mircalla, Countess Karnstein", dated 1698. The portrait resembles Carmilla exactly, down to the mole on her neck.
During Carmilla's stay, Laura has nightmares of a fiendish cat-like beast entering her room at night and biting her on the chest. The beast then takes the form of a female figure and disappears through the door without opening it. Laura's health declines and her father has a doctor examine her. He speaks privately with her father and only asks that Laura never be left unattended.
Her father then sets out with Laura in a carriage for the ruined village of Karnstein. They leave a message behind asking Carmilla and one of the governesses entreated to follow after once the perpetually late-sleeping Carmilla wakes up. En route to Karnstein, Laura and her father encounter General Spielsdorf. He tells them his own ghastly story.
Spielsdorf and his niece had met a young woman named Millarca and her enigmatic mother at a costume ball. The General's niece was immediately taken with Millarca. The mother convinced the General that she was an old friend of his and asked that Millarca be allowed to stay with them for three weeks while she attended to a secret matter of great importance.
The General's niece fell mysteriously ill and suffered exactly the same symptoms as Laura. After consulting with a priestly doctor who he had specially ordered, the General came to the realization that his niece was being visited by a vampire. He hid in a closet with a sword and waited until seeing a fiendish cat-like creature stalk around his niece's bedroom and bite her on the neck. He then leapt from his hiding place and attacked the beast, which took the form of Millarca. She fled through the locked door, unharmed. The General's niece died immediately afterward.
When they arrive at Karnstein, the General asks a nearby woodsman where he can find the tomb of Mircalla Karnstein. The woodsman relates that the tomb was relocated long ago by the hero who vanquished the vampires that haunted the region.
While the General and Laura are left alone in the ruined chapel, Carmilla appears. The General and Carmilla both fly into a rage upon seeing each other and the General attacks her with an axe. Carmilla flees and the General explains to Laura that Carmilla is also Millarca, both anagrams for the original name of the vampire Countess Mircalla Karnstein.
The party is then joined by Baron Vordenburg, the descendant of the hero who rid the area of vampires long ago. Vordenburg is an authority on vampires and has discovered that his ancestor was romantically involved with the Countess Karnstein, before she died and became one of the undead. Using his forefather's notes, he locates the hidden tomb of Carmilla. An imperial commission is then summoned, who exhume and destroy the body of the vampire on behalf of the ruling Habsburg Monarchy, within whose domains Styria is situated.
Afterwards, Laura's father takes her on a year-long vacation to recover from the trauma and regain her health.