Most good stories start with a fundamental list of ingredients: the initial situation, conflict, complication, climax, suspense, denouement, and conclusion. Great writers sometimes shake up the recipe and add some spice.
Initial Situation
The Governess arrives on the scene at Bly (Chapter One)
The beginning of the story is set up very neatly for us; first, Douglas gives us the critical background information on the Governess in the Prologue, then we immediately see her arrive at Bly, ready to start her job.
Conflict
The Governess receives a letter from Miles's school (via her employer in London) saying that the boy has been expelled and can never return (Chapter Two)
This development throws a wrench in the lovely little life the Governess has started to construct at Bly with Flora. She wonders what the boy could possibly have done to merit expulsion – what could be so bad that the headmaster couldn't even explain it in his letter home?
Complication
The mysterious male figure appears atop the tower, then at the dining room window; the Governess and Mrs. Grose talk about the dead servant, Peter Quint (Chapters Three - Five)
The tension builds as the Governess is haunted by the odd, out of place figure she sees on the tower; when she sees him again through the dining room window, she's flat-out terrified. The real complication here is not just that the figure is identified as the rascal Peter Quint – it's that Quint is dead.
Climax
Miss Jessel appears by the lake for the first time – can it be that Flora's lying? (Chapters Six - Seven)
Upon seeing the ghost that she's convinced is Miss Jessel, the Governess has a horrible revelation: she thinks the children, or at least Flora, are working together with the ghosts. This first appearance of doubt about the innocence of the children is what sparks the rest of the plot.
Suspense
Nighttime wanderings create more suspicion… (Chapters Ten - Eleven)
This time, both of the children are involved in sketchy dealings; the Governess first discovers Flora out of bed, looking out at the lawn. Days later, she finds both the children in compromising positions, with Flora at the window again and Miles hanging out outside (possibly looking up at Quint, who may or may not be atop the tower again). The Governess's suspicions worsen.
Denouement
Two options: Flora's guilt is confirmed by her denial of seeing Miss Jessel, OR the Governess's madness is confirmed because nobody else can see the ghost (Chapters Nineteen - Twenty)
Mrs. Grose and the Governess discover Flora by the lake, and the Governess flat out accuses the girl of seeing the dead governess. Flora's denial can mean one of two things – either the girl is lying, thereby confirming the Governess's suspicions, or the Governess is a total loon, which could be confirmed by the fact that neither Flora nor Mrs. Grose can see Miss Jessel.
Conclusion
Quint reappears a last time; Miles dies (Chapter Twenty-Four)
Well, this ending doesn't actually "conclude" anything, but it does provide us with a provocative and rather sudden final event. The story, as far as we're concerned, can't possibly go on past this point, since Quint evidently disappears and Miles abruptly dies. Mrs. Grose and Flora are also out of the picture, doing who knows what in London, so we're just left with what we started with – the Governess, alone, and questionably trustworthy.