The Miserable Mill begins with Sunny, Klaus and Violet Baudelaire traveling with Mr. Poe on a train heading for Paltryville, the location of the children’s new home, the Lucky Smells Lumbermill. Along the way, the children see a building in the shape of an eye.

Upon arrival, the children learn that they will have to work at the mill, but as part of the deal, their new guardian, Sir (they call him Sir because his name was so long that nobody pronounces it right), will try to keep Count Olaf, their nemesis, away. They meet Sir’s partner, Charles, who shows them the library, which contains three books, one about the history of the lumbermill, one about the town constitution, and one donated by Dr. Orwell, the local optometrist, who lives in the eye shaped building.

Klaus is purposely tripped by the new foreman Flacutono, breaking his glasses, and is sent to see Dr. Orwell. When Klaus returns, hours later, he acts very strangely, as if in a trance. The next day in the lumbermill, the foreman wakes Klaus, telling him to get to work, which Klaus does immediately, and does not even bother to put his shoes or socks on. Flacutono instructs Klaus to operate a stamping machine. Klaus causes an accident by dropping the machine on Phil, an optimistic coworker. The Foremen says an unfamiliar word, the other workers ask what it means and Klaus, who is suddenly back to normal, defines the word. Klaus explains that he doesn’t remember what happened between when he broke his glasses and waking up in the mill. Foreman Flacutono trips him again, once again causing his glasses to break. This time though, Violet and Sunny accompany Klaus to Dr. Orwell’s office.

Together, they arrive at the eye-shaped building. They knock on the door and Dr. Orwell opens it. She is seemingly pleasant, and tells Violet and Sunny to sit in the waiting room. She mentions “attracting flies with honey”. Violet and Sunny wonder about this before finding Count Olaf disguised as Shirley, a female receptionist, with tights having eyes all over them and a name-plate spelled out with gum. Violet realizes that Dr. Orwell is the “honey” and that they have been the “flies”. She also learns that Klaus has been (and is being) hypnotized by Orwell, who is in cahoots with Olaf. They leave with Klaus, who is once again in a trance.

When they return to the lumbermill, they find a note instructing them to see Sir. He tells them that if there is another accident, he’ll place them under Shirley’s care.

Violet and Sunny put Klaus to bed (he remains barefoot), and then go to the mill’s library. They read the book donated by Orwell, using the table of contents to find a chapter on hypnotism among the other chapters on eyes. Violet learns that Orwell’s technique uses a command word to control the subject and an “unhypnotize” word. They then hear the lumbermill starting early, and rush to see what is happening.

They find Charles strapped to a log which Klaus is pushing through a buzz saw, and Foreman Flacutono giving orders. The girls move to stop them but see Klaus’ bare feet, a clue that he has been hypnotised out of bed yet again. Violet learns the command word (Lucky), and orders Klaus to release Charles but Flacutono orders him to continue. Shirley and Orwell arrive and the latter orders Klaus to ignore his sisters. Violet remembers, and says, the word with which Phil unhypnotized Klaus (inordinate) just in time. Sunny and Orwell have a fight, with swords and teeth, and Orwell falls into the path of the buzz saw, and is gruesomely killed. Violet is caught by Shirley and Flacutono. Klaus manages to set Charles free. About that time, Mr. Poe and Sir arrive, and the Baudelaires explain to them what has happened.

Shirley/Count Olaf is locked in the library but escapes out the window. Sir relinquishes the Baudelaires from his care, to be sent to the boarding school Prufrock Preparatory School where they have more encounters with Count Olaf.