The story began in the Shire, where the hobbit Frodo Baggins inherited the Ring from Bilbo Baggins, his cousin and guardian. Neither hobbit was aware of the Ring's nature, but Gandalf the Grey, a wizard and an old friend of Bilbo, suspected it to be Sauron's Ring. Seventeen years later, after Gandalf confirmed his guess, he told Frodo the history of the Ring and counseled him to take it away from the Shire. Frodo set out, accompanied by his gardener, servant and friend, Samwise "Sam" Gamgee, and two cousins, Meriadoc "Merry" Brandybuck and Peregrin "Pippin" Took. They were nearly caught by the Black Riders, but shook off their pursuers by cutting through the Old Forest. There they were aided by Tom Bombadil, a strange and merry fellow who lived with his wife Goldberry in the forest.
The hobbits reached the town of Bree, where they encountered a Ranger named Strider, whom Gandalf had mentioned in a letter. Strider persuaded the hobbits to take him on as their guide and protector. Together, they left Bree after another close escape from the Black Riders. On the hill of Weathertop, they were again attacked by the Black Riders, who wounded Frodo with a cursed blade. Strider fought them off and led the hobbits towards the Elven refuge of Rivendell. Frodo fell deathly ill from the wound. The Black Riders nearly captured him at the Ford of Bruinen, but flood waters summoned by Elrond, master of Rivendell, rose up and overwhelmed them.
Frodo recovered in Rivendell under Elrond's care. The Council of Elrond discussed the history of Sauron and the Ring. Strider was revealed to be Aragorn, Isildur's heir. Gandalf reported that Saruman had betrayed them and was now working to become a power in his own right. The Council decided that the Ring had to be destroyed, but that could only be done by sending it to the Fire of Mount Doom in Mordor, where it had been forged. Frodo took this task upon himself. Elrond, with the advice of Gandalf, chose companions for him. The Company of the Ring were nine in number: Frodo, Sam, Merry, Pippin, Aragorn, Gandalf, Gimli the Dwarf, Legolas the Elf, and the Man Boromir, son of Denethor, the Ruling Steward of the land of Gondor.
After a failed attempt to cross the Misty Mountains through the Redhorn Pass, the Company were forced to take a perilous path through the Mines of Moria. They were attacked by the Watcher in the Water before the doors of Moria. Inside Moria, they learnt of the fate of Balin and his colony of Dwarves. After surviving an attack, they were pursued by Orcs and by an ancient demon called a Balrog. Gandalf faced the Balrog, and both of them fell into the abyss. The others escaped and found refuge in the Elven forest of Lothlórien, where they were counselled by its rulers, Galadriel and Celeborn.
With boats and gifts from Galadriel, the Company travelled down the River Anduin to the hill of Amon Hen. There, Boromir tried to take the Ring from Frodo, but Frodo put it on and disappeared. Frodo chose to go alone to Mordor, but Sam guessed what he intended and went with him.