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In Green Lake, Texas, the Yelnats family has been cursed to be unlucky, which they blame on their ancestor Elya's failure to keep a promise to fortune teller Madame Zeroni over a century earlier in Latvia. One day, Stanley Yelnats IV is wrongfully convicted of stealing a pair of sneakers that were donated to charity by baseball player Clyde "Sweet Feet" Livingston, and is sentenced to 18 months at Camp Green Lake, a juvenile detention camp, in lieu of jail time.

The camp is in a dried lake bed where rain never falls and venomous yellow-spotted lizards proliferate. Stanley meets warden Louise Walker, her assistant, Mr. Sir, and camp counselor Dr. Pendanski. Prisoners, known by their nicknames—including Zero, Zig-Zag, Armpit, Squid, X-Ray, and Magnet—spend each day digging holes in the desert; they may earn a day off if they find anything interesting inside the holes. After Stanley finds a golden lipstick tube initialed K.B. and a fossil, he is accepted into the group and given the nickname Caveman. When Magnet steals Mr. Sir's bag of sunflower seeds, Stanley takes the blame and is taken by Mr. Sir to Walker's cabin. Inside, Stanley notices old wanted posters and newspapers that lead him to realize that "KB" stands for Katherine "Kissin' Kate" Barlow, an outlaw his great-grandfather encountered. Walker assaults Mr. Sir for his irrelevant report and allows Stanley to return to work.

Camp Green Lake's history is revealed in a series of flashbacks as a flourishing lakeside community in the 19th century. Kate romantically bonds with Sam, an African-American onion merchant who helps repair her schoolhouse. When the wealthy Charles "Trout" Walker discovers the two kissing, he spreads the word in a fit of jealousy, and the town's citizens burn down the schoolhouse and murder Sam. In retaliation, Kate becomes an outlaw hunting down Walker's men, earning her nickname by kissing the men she murders. As her legend is established, Green Lake goes into decline due to the lake's sudden evaporation. One of Kate's victims is Elya's son Stanley Yelnats Sr., who is robbed of his chest of gold and left to fend for himself in the desert. Years later, Kate has a final confrontation with the now-destitute Walkers; before allowing herself to be lethally bitten by a lizard, she boasts that neither Walker nor his descendants will find her buried fortune.