Set in London, 1888, the novel starts (and ends) with Sherlock Holmes taking cocaine. He complains that life is too tedious to endure if he does not have anything to stimulate his intellect. He thrives on difficult puzzles and demonstrates his skills by deducing precisely where Watson has been that morning and by correctly describing the origins of Watson's watch.
Holmes is pleased when Miss Mary Morstan arrives to present the mystery of her missing father. She explains that Captain Morstan disappeared nearly 10 years ago on returning to England from the Andaman Islands. Every year since May 1882, she has received a single and 'lustrous' pearl by post, with 'no clue as to the sender'. She approaches Holmes now because she has been sent a letter from an 'unknown friend' asking her to be outside the Lyceum Theatre that evening.
Holmes and Watson accompany Mary, and the three are taken to Thaddeus Sholto's house. He tells them how Captain Morstan died of a heart attack following an argument with his father, Major John Sholto. He also explains how Major Sholto died of apparent shock before telling his sons, Thaddeus and Bartholomew, where the Agra treasure was hidden.