Charlie nervously awaits the results of the surgery, because he is still losing races against Algernon. He goes back to the bakery, where his coworkers Joe, Gimpy, and Frank make fun of him. Dr. Strauss and Professor Nemur bring Charlie a TV-like machine that plays pictures and talks to him while he sleeps. Charlie is suspicious; he complains that the machine keeps him awake and makes him tired at work. Charlie attends therapy sessions with Dr. Strauss, though he is not sure what they are supposed to do. Dr. Strauss tries to explain to Charlie about the conscious and subconscious mind. After work one day, Frank and Joe take Charlie to a bar, where they tell him to dance like a fool and then they abandon him. Charlie does not understand that they are making fun of him. Alice comes to teach Charlie in the laboratory. They begin to read Robinson Crusoe, the hardest book Charlie has ever tried to read. Charlie surprises everyone in the bakery when he shows them that he can use the dough mixer, which gets him promoted. Alice begins to teach Charlie about grammar and punctuation. He does not understand it right away, but then one day it "clicks" in his mind and he completely masters grammar and spelling overnight. Charlie’s reading, writing, and ability to retain information drastically improve each day. Charlie overhears Nemur and Strauss arguing about whether to present their findings at a convention in Chicago. Strauss thinks it is too early, but Nemur overrules his decision. Charlie becomes friends with some of the college students he meets on campus, and he happily discusses Shakespeare with them. They also discuss God, which causes Charlie to understand just how big religion really is.

Charlie takes Alice to the movies. He realizes he really likes her, and Charlie confesses his attraction to Alice over dinner. She replies that it would be inappropriate for them to develop a romance. Charlie is upset that the books he reads do not offer solutions to the emotional problems he is feeling. Charlie is very upset to discover that Gimpy is stealing from the bakery, undercharging customers and keeping the change. Charlie feels that he should tell Donner, but Nemur says that he should not become involved. Charlie realizes after talking with Alice that he can make his own decisions. He goes to Gimpy, and he agrees, but is angered with Charlie's new intelligence. When Charlie takes Alice to a concert, he hallucinates that he sees a young boy watching them with his pants undone. Charlie later realizes that he saw this because his intellectual growth has outgrown his emotional one. Under pressure from the other employees about Charlie's new intellectual growth, Donner fires him. Charlie then notices how much he misses the job and how much it meant to him. Later, Charlie and Alice try to become intimate, but Charlie panics because he thinks of his mother beating him if he became sexually aroused.

Charlie begins recording his progress reports to a tape recorder. The first part is recorded while Charlie, Nemur, Strauss, and Algernon are on their way to the convention. Charlie dislikes having to wear a seat belt because he does not like the feeling of being trapped. When Charlie is at the convention, a student asks Nemur if he had read a article that was in Hindi about the same topic. Charlie is shocked to find out that Nemur and Strauss do not know as much as he thought they did, and though he calls them frauds, Burt urges him to be patient because Strauss and Nemur never claimed to know it all. Charlie then realizes that he was being impatient and that his quest to learn everything is impossible. When Burt reveals information later that Algernon's behavior became erratic during the height of his intelligence, Charlie becomes upset and thinks of the idea of releasing Algernon from his cage. Charlie comes to a sudden understanding that there is a problem with Nemur and Strauss' ideas; they have not recorded enough time to see if the change to Algernon is permanent. Charlie then releases Algernon from his cage, but catches him later as he hops on a plane back to New York to hide from Nemur and Strauss. Charlie moves into an apartment that is in the city, and builds a more complex maze for Algernon. He then meets his next door neighbor, Fay, who he strangely becomes attracted to because of her free-spiritedness and flirtatiousness.

Charlie visits his father at his barbershop that he was able to open after he left Charlie's mother. Charlie tries to mention to him that he is his son, but becomes to nervous. He ends up getting a haircut and leaving. Algernon does very well in the new mazes that Charlie has built, but sometimes becomes depressed and throws himself against the wall. After letting Fay stay overnight in his apartment, Charlie wakes up naked. Fay tells him that he was acting very strange the night before, and Charlie realizes that the old Charlie is still in his subconscious mind. Charlie visits Alice and talks about his feelings with her. He is concerned that he is becoming isolated from everyone around him. Charlie wants to make love to Alice, but his anxieties prevent him from doing so. Charlie tries to trick himself into pretending he is making love to Fay, but is unable to do it because he does not think it is fair to use Alice as an emotional experiment. He goes home to wait for Fay, who then he aggressively tries to make love to. He knows that his subconscious is watching him, but he does not panic. The Welberg Foundation, who pays for the experiment, agrees to allow Charlie to do research at the college without having to tell to Nemur. Charlie returns to the lab, and he is shocked to find that Algernon’s problem-solving abilities seem to have gone down. Nemur says to Charlie that if he were to become retarded again, he would have to be sent to the Warren State home. Charlie decides to visit the home to see what awaits him. Charlie visits the home, and even though the staff is kind to him, he is unnerved by the mentally handicapped people that he sees there, and the fact that he will be joining them. One night, when Alice happens to show up at Charlie's apartment and Fay arrives unexpectedly, Charlie is surprised to see that they get along well. When Charlie attends a party that is in honor of the Welberg Foundation, he drunkly tries to interject a rude comment into a conversation that Strauss was having with a board member. Nemur then accuses Charlie of being ungrateful, but Charlie argues that he does not have much to be grateful for anymore. Nemur tells Charlie that he has become self-obsessed, and later Charlie finds that he is right.

Charlie comes to a huge breakthrough, and finds that the more artificial intelligence someone gets, the quicker that it will be lost. Trying to convince Alice, Strauss, and Nemur that they could not have possibly predicted this to happen, Charlie senses that his intelligence is decreasing when he becomes absent-minded. Algernon soon dies. Charlie eventually goes to see his mother, trying to quickly explain to her what has happened to him, but realizes that she is delusional. For a moment, Rose is proud of her son. Norma, who cares for Rose now, comes home and is happy to see Charlie. She apologizes for the way she acted when she was little, before Rose comes in suddenly with a knife trying to kill Charlie. Charlie leaves in tears. He thinks about suicide, but then decides that he must write his reports for the future of a scientific breakthrough. Charlie's intelligence seems to deteriorate even more as he has the therapy sessions with Strauss. Alice stays with Charlie, wanting to spend as much time as possible with him before he returns to his original state. When they make love for the first time, it is a spiritual and emotional experience, unlike the physical sex he had with Fay. Charlie tells Alice that he does not want her to watch him go back to how he originally was, and that when he goes back, he does not want her to return once she leaves. As Charlie's deterioration progresses, Alice becomes upset when Charlie tells her to leave because he wants to leave everything how it is now, and that she reminds him of his mother. Alice is extremely upset when she leaves.

When Charlie returned back to his original state, he goes back to Mr. Donner's bakery to get his old job back. The new employee that was there while Charlie was gone is mean and threatens to hurt Charlie, but Joe, Frank, and Gimpy come to Charlie's rescue. He is grateful to have friends that he can go to when he needs help. Charlie does not remember that he is no longer in Alice's class, and when she sees him back to his original state, she runs from the room, crying. He decides that he would be better off if he went to live in the Warren Home, and writes a good-bye letter to everyone; Alice, Dr. Strauss, and Professor Nemur. The last words of the book are Charlie with a simple request; "please if you get a chanse put some flowrs on Algernons grave in the bak yard."