Chapter 1 introduces the reader to James, Aunt Sponge, and Aunt Spiker. At four years-old, James lived with his parents in a wonderful house along the sea, until his parents were eaten by a rhinoceros during a day trip to London. Soon after his parents' death, James was sent to live with his aunts, bringing nothing with him but a pair of pajamas and a toothbrush. Aunt Sponge and Aunt Spiker forced James to perform back-breaking labor, locked him up for punishment, and never let him leave the confines of their house and garden. From the top of the hill that the house was perched on, James could see woods, fields, and sometimes his former house. There was little for James to do in the house or garden, and the only thing that remained on Aunt Sponge and Aunt Spiker's unpleasant property was an ancient peach tree that never grew peaches.

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Chapter 2 is set three years after James began living with his aunts, on a day when rather peculiar, very peculiar, and fantastically peculiar moments occur. James' two aunts watch him while he chops wood in the heat, each of them bragging loudly about her own beauty, complimenting her own eyes, hair, clothing, and other bodily features through rhyme. While James chops wood, he thinks of other children in the world and envies their happiness. At one moment, he is overwhelmed by his thoughts and begins to cry. When his aunts begin to yell at him, he begs them to set aside a day to take him to the beach. Aunt Spiker and Aunt Sponge threaten to beat James, and James runs away to a corner of the garden and begins to cry hysterically.

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In Chapter 3, James is crying in the corner of the garden when an Old Man appears from behind the bushes. This is a small Old Man who rests on his cane for support, and he calls James to come closer to him. When James moves towards the man, the old man reveals a small white paper bag filled with tiny green things that resemble crystals, each one about the size of a grain of rice. Soon James sees that the tiny green crystals are moving, and the Old Man tells James that these little items had "more power and magic...than the rest of the world put together." When James asks what the items are, the Old Man responds that they are "crocodile tongues boiled up in the skull of a dead witch for 20 days with the eyeballs of a lizard." After this brief yet confusing explanation, the Old Man gives the bag to James and tells James that the items are now his.

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In Chapter 4, the Old Man gives James special instructions for using the moving magic crystals. James must pour the little green things into a large jug of water and then add 10 of his own hairs to the mixture, one by one. As soon as the mixture begins to boil, James is to drink it down, and then magical things will begin to happen to him. He will no longer be miserable. The Old Man gives one last instruction before he leaves James - don't let the green things escape, or else they will work their magic upon somebody else instead!

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In Chapter 5, James excitedly runs off with the bag and makes a plan to create the mixture in the kitchen, in secret from his aunts. In his rush to get to the kitchen unnoticed, James trips on the roots of the ancient peach tree and the bag breaks. The tiny green things land on the ground and, as James frantically tries to gather the crystals, they sink into the ground and burrow into the soil. Devastated, James feels that all of his luck has been lost. His aunts come over to him and yell at him for being lazy, threatening to punish him by making him sleep in the water bucket to the well. He is instructed to continue chopping wood immediately, when all of a sudden he hears a shout that makes him stop and turn.

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At the beginning of Chapter 6, Aunt Spiker shouts to Aunt Sponge that a peach is growing on the once-barren tree. Aunt Sponge is shocked. James puts down his yard tools and walks up to his aunts; he has a feeling that something peculiar is going to happen. His aunts want to eat the peach, splitting it half-and-half, and they ask James to climb the tree to the tallest branch and get the peach down for them. When James reaches the top, his aunts yell at him to not eat any of the peach before he brings it down. But just before James reaches the peach, both of his aunts shout out that the peach is growing! In no time at all, it has doubled in size.