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At the beginning of the story, 7-year-old Sara Crewe is about to enter boarding school. For a time she lived in India with her wealthy father. But now she has been sent to London and will receive a harsh education at Miss Minchin's girls' boarding school.

Aweed by Sarah's immense wealth and wanting her to stay in school as long as possible, Miss Minchin allows Sarah a more luxurious life than the average student. She has her own personal maid, a pony, a private sitting room and a gorgeous wardrobe. She was allowed to do whatever she wanted and was constantly complimented and recognized as the school's star student. When Captain Crewe becomes a shareholder in a diamond mine - investing all of his wealth in a "dear friend" - Sarah's status rises even higher.

Under such flattery, Sara has always been humble and peaceful. She is smart, compassionate and universally liked by her classmates. A child with a gift for storytelling, she could draw students from every house—even those who didn't like her, like Lavinia—to listen to her stories. She pretended that she was a princess and tried to learn the qualities of a princess: generosity, compassion and courtesy. Her best friend, Ermengarde, is a so-called "school goof"; Sara helps her learn by spinning lessons into stories. Sarah is the "adoptive mother" of Lottie, a younger student. Sarah and Lottie have one thing in common - they have no mother. She also became good friends with Becky, the school's laundry maid, and secretly provided her with food.

On Sarah's 11th birthday, Captain Crewe's lawyer brought bad news: Captain Crewe died of meningitis. Furthermore, his "dear friend" had squandered all his wealth, leaving not a penny for Sarah. Miss Minchin was furious and prepared to throw Sara into the streets, but ultimately decided to make her a maid. She immediately took away all of Sarah's belongings and sent her to a dingy attic room next to Becky's. From then on, Sara became an "all-purpose" servant at the school, working from teaching French classes to cleaning and running errands. She had no food and no adequate clothing. The other servants took pleasure in calling on Sarah. As Sarah's condition worsened, she began to feel hopeless. She had been imagining herself and Becky living as prisoners in the Bastille. Her friends Ermengarde and Lottie cheered her up by visiting her from time to time in her attic.

One day, a seriously ill and depressed man moved into the tower next to the college. Sara called him an "Indian gentleman" because she saw some items brought from India. Sara spoke to him in Hindi through a skylight, thus getting acquainted with the Indian gentleman Moro Ramdas. She was also interested in the family of Indian gentlemen who frequently visited her, calling them "the extended family."

Sarah did not know that this Indian gentleman was her father's "dear friend", Mr. Carrisford. He fell ill with encephalitis in India and left India after Crewe died. But he neither lost nor stole Crewe's wealth. In fact, he has made it appreciate in value. He feels guilty because he couldn't find Crewe's daughter and return the wealth to her.

The patriarch of the "extended family", Mr. Carmichael, is Mr. Carrisford's lawyer. His main duty is to find the missing Sarakru. They even went to Russia and France to look for possible clues. The children of the extended family knew about Sarah and wanted to find her.

Sarah and Carrisford lived on opposite sides of the townhouse wall for many years. Sarah becomes increasingly thin and ragged, so one of the children of the "extended family," Donald, believing she is a beggar, gives her a Christmas sixpence. Carmichael's children were interested in her but did not ask her name and continued to search for Crewe's daughter. They began to call her "the little girl who was not a beggar," watching her as carefully as she watched them, never guessing that she was the missing Sarakru their father had been searching for.

Ram Dass tells Mr. Carrisford about Sarah's miserable life in the attic.

They plan to improve Sara's life by giving her secret gifts. While she slept and worked, Ram Dass and his assistants went across the rooftops to deliver furniture, blankets, books, and other gifts to Sara. Every night they lit a fire in the fireplace and left Sarah and Becky with a big meal. In the end, they completely transformed the attic space into a warm and cozy place. They even sent expensive clothes to school to replace the rags Sara was wearing. Sarah took this as a sign that magic was real, that someone cared about her, and that her spirits improved greatly. No one except Becky noticed the changed attic room, but Miss Minchin and Miss Amelia noticed the attic, as well as Sarah's happy feeling and new clothes.

One night, Ram Dass' monkey escaped. Sara brought the monkey back from the cold outdoors. The next day, she took the monkey and returned it to Mr. Carrisford's house. She casually mentions that she was born in India, and Carrisford and Carmichael discover that she is the missing Sara Crewe.

Carmichaels explained everything to Sarah, telling her that her wealth had doubled and would be kept safely until she came of age. Mr. Carrisford becomes her new guardian. Becky also escapes from Miss Minchin's school and becomes Sarah's new servant. Ermengarde and Lottie often visited her. Sarah regained her wealth and retained her generosity. In the last chapter of the book, she proposes a plan to donate bread to homeless children.