Dhalgren is set in the midwestern American city of Bellona, which has been struck by a mysterious disaster. The aftermath is deeply disturbing and surreal: a city block burns down only to be intact a week later; clouds shroud the sky for weeks, then part to reveal two moons; time flows differently, with a week passing for one person while only a day passes for another.

The catastrophe is confined to Bellona, leading most inhabitants to flee. However, the city draws in a unique mix of people, including the Kid, a white/American Indian man who cannot remember his own name. The Kid symbolizes the new Bellona residents: the young, the poor, the mad, the violent, the outcast—the marginalized.