The story was adapted into the 1998 film.
In 1974, Todd Bowden, a Los Angeles teenager, arrives at the doorstep of elderly German immigrant Arthur Denker, accusing him of being a wanted Nazi war criminal named Kurt Dussander. Todd has spent a few months prior to confronting Dussander secretly observing him by taking photos, lifting his fingerprints from his mailbox and front door and doing research to properly identify him. Dussander had been the commandant of a (fictional) Nazi concentration camp, Patin, and had been commended by Himmler himself for being efficient at the extermination and disposal of Jewish prisoners. The old man initially denies the allegation, but eventually acknowledges his true identity. Rather than turning Dussander over to the proper authorities, Todd asks to hear highly detailed stories about his crimes, having recently become interested in the Holocaust. Todd threatens Dussander with exposure should he refuse his demands.
Over the next several months, Todd visits Dussander daily, badgering him into revealing the more gruesome details of his atrocities. Todd soon gives Dussander a cheap copy of an SS Obersturmbannführer's uniform, forcing him to wear it and march on command. As his relationship with Dussander continues, he becomes distracted and pays less attention to his schoolwork. Todd also begins to have nightmares. His grades slip dramatically and his parents become concerned that he's spending too much time with Mr Denker -- Todd has them fooled into thinking he's reading for the kindly old man, whose eyesight is failing. After being confronted by his father about his grades, he meticulously doctors his report cards before giving them to his parents. Eventually, Todd is in danger of flunking several courses. Todd's guidance counselor, Ed French, requests an appointment with the Bowdens. Todd and Dussander concoct a ruse, having Dussander go to French's appointment while posing as Todd's grandfather, Victor. Dussander falsely claims that Todd's grades are the result of problems at home (he claims Todd's mother is alcoholic and his parents have been fighting), and promises to make sure his grades improve; French has suggested that Todd's parents start family counseling and Dussander promises they will if Todd receives any more failing grades. French buys Dussander's story, but notices that Todd's "grandfather" oddly does not mention his grandson by name.
Knowing that Todd has been doctoring his report cards and knowingly socialized with a war criminal, Dussander blackmails Todd into spending his visits studying. With great effort, Todd is able to sufficiently improve his schoolwork. Since he no longer has any use for Dussander, Todd resolves to kill him and make it look like an accident. Todd had earlier claimed to have given a letter explaining Dussander's identity to a friend; if anything should happen to Todd, the letter will be sent to the authorities. However, before Todd can kill Dussander, the old man claims to have written a lengthy piece about Todd's involvement with him, and put his statement into a safe deposit box that will be found upon his death, prompting Todd to abandon his plan to push Dussander down his cellar stairs. Over the next few months, Todd, in an effort to combat his new neuroses, murders several homeless vagrants; he finds that committing murder somehow eases the nightmares he'd been having. As years pass, Todd's visits to Dussander become less frequent. He loses his virginity, but finds sex unsatisfying compared to the thrill of murdering local derelicts. When circumstances do not allow him to continue his serial killings, he picks a concealed spot overlooking the freeway and aims at people in passing cars with his hunting rifle. Dussander, suffering from his own nightmares, has also taken to killing the homeless for essentially the same reason as Todd, burying the bodies in his basement. Despite the link between them, Dussander and Todd are not immediately aware of each others' exploits.
One night, when Dussander is digging a grave for his latest victim, he has a heart attack. He summons Todd, who buries the body and cleans up the crime scene before finally calling an ambulance. At the hospital, Dussander happens to share a room with Morris Heisel, an elderly Jewish man who recognizes "Mr. Denker", but cannot place him. When Todd visits Dussander in the hospital, Dussander admits he was bluffing about the bank deposit box, as was Todd's threat about his letter. Dussander has read about the homeless men murdered by Todd, and tells the boy not to get careless. Dussander declares that "we are quits".
A few days later, Heisel realizes that Denker is Dussander, the commandant of the camp where his wife and daughters died in the gas chambers and Heisel himself was enslaved. An Israeli Nazi hunter named Weiskopf visits Dussander, telling him that he has been found out. After Weiskopf leaves, Dussander steals some drugs from the hospital dispensary and commits suicide. When Dussander's identity is publicly revealed, Todd convinces his parents that he didn't know about Dussander's past. Meanwhile a police detective named Richler, accompanied by Weiskopf, interviews Todd and is not so easily convinced. A vagrant recognizes Todd as the last person seen with several of the homeless victims, and notifies the police. Meanwhile, French meets Todd's real grandfather, a man nothing like the one that had visited him years before and who lives a good distance from Los Angeles. French brings up their previous conversation, but the real Victor Bowden obviously doesn't recall their meeting, even saying that he'd never meddle in his son's family's affairs. French becomes suspicious and checks Todd's old report cards, finding that they have been tampered with. Later, he identifies the late Kurt Dussander as the man who met with him about Todd's grades. French confronts Todd at home, who responds by fatally shooting him. Todd then takes his rifle and ammunition to his hideout by the freeway. He embarks on a shooting spree, resulting in his death at the hands of the authorities some five hours later.