If you haven't read the series, this wiki contains spoilers.
Reynard "Reynie" Muldoon is an orphan at the Stonetown Orphanage, an exceptionally smart child tutored by a kind woman named Miss Perumal. He reads a mysterious advertisement in the newspaper calling children who have extraordinary talent to take a test that is being hosted nearby. At the facility, he takes two rounds of testing, and is the only one in the room each time to pass - which he does easily by reading between the lines and figuring out the puzzles involved as well as refusing an offer to cheat. Invited to go to another facility to continue testing, he meets George "Sticky" Washington, a timid boy with an extraordinary gift for memory which he used to pass the tests. During the final two physical tests, he meets Kate Wetherall, an athletic and resourceful girl with a large bucket of objects, and Constance Contraire, a diminutive girl with a very defiant personality and a gift for wit, especially considering her minuscule size. All four children are also revealed to either have no parents or (in the case of Sticky, a runaway) to have been estranged from them.
All four children pass the tests and meet Mr. Benedict, the leader of the organization that led the tests. He then shows them a television, playing news about a looming Emergency that is plaguing the country at large, and uses a device to reveal a secret signal that is being broadcast with the TV transmission, the voice of a young children giving cryptic messages. He tells them that these signals are coming from the Learning Institute for the Very Enlightened (L.I.V.E.), a mysterious organization nearby that also attracts young gifted children, and they have been transmitting for the past few years. Believing that these transmissions were causing the illusion of the Emergency and wanting evidence for his findings, he had administered these tests to organize a group of children to infiltrate the Institute, which the four children leave to do the next day.
The four children quickly discover the Institute to be a cryptic organization that relies on illusions, such as the lack of rules. Much of the curriculum taught is cryptic and nonsensical - including the cryptic messages in the secret signals - and relies on memorization. They also discover a hierarchy of Executives, older students who run the Institute, and Messengers, slightly younger students with special privileges, "special recruit" students who are kidnapping victims but have no recollection of being abducted, and Helpers, somber adults who mindlessly work at the Institute. In addition, they discover the institute to be run by Ledroptha Curtain, Mr. Benedict's long lost identical twin. All of this information is transmitted back via Morse Code to Mr. Benedict through his agents Rhonda, Number Two, and Milligan who are stationed in a forest across the sea from the Institute, watching with a telescope.
Through espionage, they discover that Curtain exerts much of his power through devices that interface directly with the brain. Helpers are government agents who were "brainswept" (given total amnesia) and the "special recruits" and former Messengers were given lacunar amnesia in order to forget their kidnappings or Messenger privileges, respectively. They also learn that a device called the Whisperer is transmitting the signals, and also see that Curtain is increasing the power of the thought transmissions it emits so that it no longer has to rely on other signals. They discover that Mr. Curtain's plan is to soothe the fear created by the Emergency, by using his Whisperer. In addition, Constance begins to hear the voices of individual Messengers during transmission. In order to gain the evidence they need, the children decide that they must become Messengers, and Reynie and Sticky, who know the answers, help let Kate and Constance see their answers, in order to gain the traction they need. Reynie and Sticky eventually become Messengers, which allows them each bi-weekly sessions with the Whisperer. These sessions are where the messages are transmitted, and they are also very euphoric to the Messengers involved.
However, eventually both of them are caught as Agents and are sentenced to brainsweeping. With Mr. Curtain nearing total domination and the children in imminent danger, Milligan, who was captured, escapes and finds Kate being harmed by Jackson and Jillson. He then alerts Mr. Benedict, who comes with his agents to the Institute. While Constance stalls for time by stubbornly telling the brainsweeper that she is not, in fact, herself, Reynie figures out that by making Mr. Curtain angry he could make him fall asleep, as he has narcolepsy triggered by feelings of intense anger. Reynie begins taunting Mr. Curtain, and combined with other tactics by the children to increase his anger, Curtain's narcolepsy triggers and he falls asleep. Soon, Mr. Benedict arrives and destroys the Whisperer by taking control of it, stopping the signals and Mr. Curtain's empire.
In the end, Ms. Perumal adopts Reynie, Kate finds her long lost father (who is revealed to be Milligan), Sticky's parents finally find him, and Constance agrees to be adopted by Mr. Benedict (who also adopted Number Two and Rhonda.) It is also discovered by the crew that Constance is only about 3 years old, explaining her crankiness and exhaustion over simple things. The story ends with a snowball match between Rhonda, Sticky and Constance against Reynie and Kate.
This book begins with Reynie and Constance in a room on the uncomfortably warm third floor of Mr. Benedict's home. Responsible for their confinement was a variation of the Prisoner's Dilemma. This game is based on a situation in which two criminals are arrested, but the police do not have evidence for a major conviction, so they put the two in separate rooms. They are each offered the same deal. If one prisoner decides to betray his partner and testifies against him, while the other prisoner keeps quiet, the traitor goes free and his partner receives a ten-year prison sentence. If they both betray one another, they each receive a five-year sentences. If they both remain silent, they are sentenced to six months in jail for a minor charge. Rhonda, one of Mr. Benedict's helpers and adopted daughter, had come up with a variation to this game in which Kate and Sticky were to be in one room while Reynie and Constance in another to make their decisions. They could choose from Option A, to remain silent, or Option B, to betray. If both teams chose Option A, then they would receive extra kitchen duty for the rest of the day. If they both chose Option B, they would both receive extra kitchen duty for the rest of the week. If one team chose Option A while the other chose Option B, the traitors would be clear of kitchen duty while the others did the week's dishes by themselves. The Mysterious Benedict Society finally found a way out of the dilemma.