The Tower Treasure introduces Frank and Joe Hardy, teenage brothers living in the coastal city of Bayport. Frank, 16, is tall and dark-haired; Joe, a year younger, is fair and blue-eyed. Both attend Bayport High School and aspire to become detectives like their father, Fenton Hardy, a famous private investigator. The boys have recently helped their father on a forgery case, and they are eager to prove themselves further.
One morning, Frank and Joe ride their motorcycles along a narrow shore road to deliver legal papers for their father. A speeding car hurtles around a curve behind them, nearly forcing them over a steep embankment. Frank glimpses the reckless driver: a man with a shock of red hair who shakes his fist at them before speeding away. After completing their errand, the boys visit their school friend Chet Morton at his family's farm. Along the way, they discover a wrecked car overturned by a culvert, with no driver and no license plates. At the farm, Chet tells them his distinctive yellow roadster has just been stolen from his locked garage. Frank connects the wreck to the theft, reasoning that the red-haired driver crashed his own car and then stole Chet's.
Tracing the roadster's path toward Bayport, the boys encounter Callie Shaw, a classmate Frank admires, who reports that a man driving Chet's roadster sped past her minutes earlier. At the police station, they learn the stolen car was used in an attempted hold-up of the steamboat ticket office. Chief Ezra Collig is interviewing the ticket seller, Ike Harrity, who describes the robber's hair as short and dark, while a witness insists it was long and red. That night, Fenton Hardy uses the conflicting descriptions to teach his sons about observation, hinting that the two accounts may not indicate two different men.
The following Saturday, the boys and friends picnic at Willow Grove near Willow River. Joe discovers tire tracks in the mud of an abandoned road, and Chet recognizes the distinctive tread as matching his roadster's unusual tires. They find the roadster hidden in a clearing, undamaged. Driving it back to Bayport, they learn that Tower Mansion, the hilltop estate of the wealthy Applegate family overlooking Barmet Bay, has been robbed. The mansion is an immense stone structure with two towers: an old one built by the original owner, Major Applegate, and a newer duplicate added by his descendant, Hurd Applegate. Hurd, about 60, is a stamp-collecting recluse; his sister Adelia dresses in garish, outdated clothing. Hurd reports that the safe in his library was opened, apparently by someone who knew the combination, and roughly $40,000 in securities and jewels were stolen.
Fenton Hardy takes the case. Hurd immediately accuses the caretaker, Henry Robinson, because Robinson is the only person besides the Applegates who could have learned the combination, and because Robinson recently paid off a $900 debt despite being nearly broke. The Hardy boys are dismayed, as Robinson is the father of their close friend Perry "Slim" Robinson. Under questioning, Robinson admits he accidentally found the combination on a slip of paper but insists he never used it. He refuses to explain where he got the $900, saying only that the money was received honestly. Applegate has Robinson arrested, and the Hardy boys find Perry, his mother, and his twin sisters devastated by the news.
Convinced the reckless red-haired driver may be connected to the robbery, Frank and Joe return to the wrecked car on the shore road and find a tuft of vivid red hair attached to linen, clearly part of a wig. This explains the conflicting descriptions: the thief wore the wig intermittently, appearing red-haired to some witnesses and dark-haired to others. Fenton Hardy confirms this evidence links the shore-road driver, the car thief, and the hold-up man as one person. Perry visits and reports seeing a stranger lurking on the Tower Mansion grounds two days before the robbery. Hardy presses for Robinson's release, and the charge is dropped, but Applegate dismisses Robinson from his position. A $1,000 reward is posted for recovery of the stolen property. Perry tells the Hardy boys he must leave school to help support the family, and Frank and Joe resolve to earn the reward and clear Robinson's name.
Returning to the clearing where Chet's roadster was found, the boys discover the full red wig, a battered hat, and a worn coat hidden in the bushes. Fenton Hardy identifies a manufacturer's mark inside the wig and takes the items to New York to trace the owner. After over a week of investigation, he learns the wig was made for a Shakespearean actor named Harold Morley, who confirms it was stolen from his dressing room. That trail dead-ends, but Hardy searches police records and finds a note connecting a paroled criminal who habitually wore red wigs: a man named John "Red" Jackley.
Hardy locates Jackley in New York, confirms him as the thief, and trails him when Jackley flees the city after a jewel robbery. Jackley, a former railroad worker familiar with the Bayport area, tries to escape on a stolen railway speeder, a small motorized vehicle that runs on tracks, but crashes and is fatally injured. Chief Collig and Detective Smuff learn of Jackley's capture and announce plans to interview him, threatening to bungle the case. The Hardy boys recruit their friends to delay the officers, and Chet devises a scheme involving an old alarm clock placed in a box near the police station. When the ticking package is discovered, the resulting panic causes Collig and Smuff to miss their train.
Fenton Hardy reaches the hospital and interviews the dying Jackley, who confesses to robbing Tower Mansion. Jackley says he could not escape with the loot and hid it "in the old tower." He dies before he can elaborate. The boys interpret this as the old tower of Tower Mansion and rush to search it, but the tower is thick with undisturbed dust and yields nothing. They search the new tower as well without success. Fenton Hardy conducts an exhaustive second search of both towers and the mansion grounds, but the loot remains missing. Robinson is arrested again and held for trial. Perry pleads with Hardy to continue, but the detective admits he has exhausted every lead.
The breakthrough comes on a Saturday when the boys take a motorcycle outing along a road paralleling the Bayport and Coast railway line, where Jackley once worked. Eating lunch on a hillside, they look down at the tracks and spot two water towers: a newer red tank near a station and an old, abandoned one nearby. The realization strikes both boys at once: Jackley said "the old tower," not "the old tower of Tower Mansion." As a former railwayman, he likely meant the old water tower.
They climb the decrepit structure and open a trapdoor into a dark space filled with old lumber. Behind a pile of boards, Joe finds a gunny sack containing the Applegate jewels and packets of negotiable bonds. They speed back to Bayport with the treasure.
Fenton Hardy arranges for Chief Collig to bring Robinson to Tower Mansion, ostensibly to face new evidence. In the library, Hardy empties the sack onto the table, and Hurd Applegate confirms everything is accounted for. Applegate apologizes to Robinson and offers him his caretaker position back with increased salary and back pay. Robinson gratefully accepts. Adelia Applegate praises the Hardy boys, and Hurd writes two checks of $500 each as the reward. At a celebratory supper, Perry explains his father's $900: A man who owed Robinson the money had repaid him but required secrecy because the man owed other creditors and feared a lawsuit. The mystery of the Tower treasure is fully resolved.