Santiago, the protagonist of the story and a shepherd boy from Andalusia, Spain, sets off on a journey to find his Personal Legend and follow his dreams. The journey takes him from the hills and valleys of his homeland to the Sahara Desert, the Great Pyramids of Egypt, and back home again to Andalusia. Along the way, he learns valuable lessons from a magical king, a crystal merchant, an aspiring alchemist, and others. He also takes risks and encounters dangerous situations; he uses what he learns to overcome obstacles and, ultimately, live out his destiny.
The 200-year-old master alchemist lives in the desert oasis of Al-Fayoum. Recognizing Santiago's inner strength, the alchemist appears on horseback and takes the boy under his wing, teaching him valuable lessons about alchemy, Personal Legends, and the Soul of the World. Together, they travel across the desert by caravan and on to the Egyptian pyramids, facing armed robbers and other hurdles along the way. The two part ways after the alchemist demonstrates how to use the Philosopher's Stone to turn base metals into gold.
The Englishman wants to learn the art and science of alchemy and is in search of a master alchemist to teach him the secrets of his trade. While in Tangier, the Englishman forms a friendship with Santiago and travels with him to the desert oasis of Al-Fayoum, where the master alchemist supposedly lives. Both the Englishman and Santiago want to pursue their Personal Legends.
Melchizedek, the old king of Salem, meets Santiago in the Andalusian village of Tarifa. When Santiago questions whether Melchizedek is really a king, the elderly man turns to magic to convince him that it is true. With Santiago's trust gained, Melchizedek explains the concept of the Personal Legend and convinces the boy to pursue his.
A seller of crystal in the busy Moroccan city of Tangier, the crystal merchant hires Santiago to work in his shop after the boy loses everything he owns to a robber. Though the merchant teaches the boy important lessons in business, he initially discourages the pursuit of Personal Legends and dreams.
Fatima, who lives in Al-Fayoum, meets Santiago during his extended stopover in the desert oasis. Santiago falls in love with Fatima but chooses to leave her behind to pursue his Personal Legend and continue his journey to the Egyptian pyramids. Once he discovers his Personal Legend, however, he vows to return with it to Fatima in Al-Fayoum.
The gypsy woman is known as an interpreter of dreams, and Santiago seeks her out upon arrival in Tarifa. When Santiago describes his dream, the gypsy woman explains that "dreams are the language of God" and advises him to depart at once for Egypt to find the buried treasure.