How It All Goes Down
Meggie lives with her dad, Mo. One night a guy named Dustfinger comes to see Mo, and they talk about some dude who's on his trail (Capricorn). Mo decides to bail with Meggie, and Dustfinger tags along as they go to visit Mo's absent wife's aunt, Elinor. Mo entrusts a book to Elinor but is all secretive about it.
Capricorn's men break into Elinor's place to kidnap Mo and steal the book. Meggie and Elinor decide to go find Mo and offer Capricorn the real book in exchange for him since Elinor had secretly switched the real book for a fake one. Dustfinger shows them to Capricorn's village, which is a day's drive away in southern Italy.
They arrive, and Meggie realizes that Dustfinger had been working for Capricorn all along—she and Elinor are imprisoned with Mo. Mo finally spills the beans: he read Capricorn and Dustfinger out of a book called Inkheart (which is the same book that everyone seems to want). This means that they were characters in the book, but then—nine years ago—they popped out into the real world. Just as people can be read out of books, so too can they be read into them, which accidentally happened to Meggie's mom and she hasn't been seen since. Oops.
Now, Capricorn wants Mo to become his new reader, since the other dude who reads people/stuff out of books, Darius, is no good at it.
Dustfinger decides to help them all escape since Capricorn lied to him about sending him back into the world of Inkheart, so Dustfinger, Elinor, Mo, Meggie, and Farid (a boy Mo accidentally read out of another book) all high tail it out of there. Somehow our scrappy band of heroes manages to escape to a coastal village, where they spend a few days recuperating before Elinor drives them home… and finds that all of her books have been burned by Capricorn's men. Curses.
Mo and Meggie go to meet Fenoglio, the old dude who wrote Inkheart, in hopes of finding another copy of the book (and thus having a shot at reading Meggie's mom out). Fenoglio's excited to hear about his characters coming to life. His excitement doesn't last long, though, because Capricorn's main dude Basta shows up looking for Mo—and since Mo's gone to meet a distraught Elinor at the airport, he kidnaps Meggie instead, dragging Fenoglio along too.
Dustfinger and Farid make their way to the village as well—Dustfinger because he's learned that Capricorn has the sole remaining copy of Inkheart hidden there, and Farid because he's become attached to Dustfinger. Dustfinger heads into the village at night and asks a maid, Resa, to help him look for the book; Resa's been mute since Darius read her out of the book.
The second time Dustfinger is in the village, though, he gets captured, and both he and Resa are thrown into a cell in a crypt, condemned to die. Mo and Elinor, who've linked up with Farid, try to figure out how to rescue everyone from Capricorn's clutches.
Meggie accidentally reads Tinker Bell out of Peter Pan, and so Capricorn plans to use her talent to read one more character out of Inkheart: his monstrous henchman, a.k.a. the Shadow. Fenoglio and Meggie come up with a plan to substitute a page that Fenoglio writes for the actual passage in the book, though. Dustfinger escapes his cell and locks Basta in his place, but Resa opts to stay because she's figured out that Meggie is her daughter (say what?). Elinor is captured while trying to help and winds up in the same cell as Resa (who is her niece).
That evening, Mo and Farid sneak into the village and start a fire as a distraction. Meggie still reads, though, and summons a version of the Shadow that kills Capricorn, and then dissolves into the living beings from whose ashes it was created. Some of Capricorn's men vanish into thin air, while others, like Basta, stay in this world (but getaway). Fenoglio vanishes into the book too.
Mo is reunited with his wife, and together with Meggie, they go live in Elinor's house with the magical creatures that have come out of Inkheart and have no way to return. Dustfinger, who watched everything from a distance, steals the only copy of Inkheart from Mo and takes off on his own (well, except for Farid, who comes with him). Meggie spends a bunch of time getting to know her mom again, and she resolves to become a writer someday.