At the start of the movie, the Nickleby family- consisting of Nicholas, his mother, and his sister Kate- is in dire straits. Mr. Nickleby, after losing all his money in unwise investments, has died, leaving his family destitute. They are forced to leave their home in the country and travel to London, seeking help from Mr. Nickleby's older brother, Ralph, who is a successful businessman. Unfortunately, he is also a cold-hearted, nasty man (played by Christopher Plummer) who has no interest in providing financial support to his late brother's widow and children. He rids himself of Nicholas' presence by getting him a job at Dotheboys Hall boys' school in faraway Yorkshire, then finds Kate work as a seamstress. As the young and somewhat naive Nicholas (Charlie Hunnam) leaves for Yorkshire, he is given a letter by Newman Noggs, his uncle's clerk, in which he writes that, if Nicholas is ever in trouble, he should seek him out.
In Nicholas' absence, he realizes that Kate may be of some use to him... his business is investments, and it depends on his convincing rich men to let him invest their money in various speculations. It occurs to him that having a young, pretty niece could be an advantage in this. Ralph goes to the shop where Kate is employed, inviting her to a dinner at his home. Surprised at his suddenly remembering her existence, Kate agrees, having no reason to suspect her uncle of malice. When she arrives for dinner, she is shocked to discover that she is the only woman present, the rest of the guests being Ralph's potential investors. It becomes clear that he is dangling her in front of them as an added incentive for investment. She attracts the particular attention of Lord Frederick Verisopht, who becomes infatuated with her, but is harmless. More sinister is the vile Sir Mulberry Hawk, who insults Kate with his dishonorable attentions, causing her to flee the dinner.
The next day, Kate goes to see Ralph and begs him to protect her from the lecherous advances of his friends, which he declines to do. As she is leaving, distraught, she meets Newman Noggs, who offers her a few words of comfort. He has been observing Ralph's machinations with growing concern, and when Kate leaves, he writes a letter to Nicholas, who he's been keeping track of, saying that he'd better return to London, because his sister is in trouble.
Armed with this knowledge, Nicholas, Noggs, and the Cheerybles go to confront Ralph and tell him the truth. Already devastated by his great financial losses, Ralph is sent over the edge by the knowledge that, not only had his son been alive all these years, but he was abused by the Squeers, who were in his pay, and who he actually encouraged to treat Smike worse to hurt his nephew. After being told by Nicholas that Smike has died, Ralph runs off to the small, dusty garret where he had had his son kept years before, and hangs himself there.