The novella tells the story of a beloved school teacher, Mr Chipping, and his long tenure at Brookfield School, a fictional minor British boys' public boarding school located in the fictional village of Brookfield, in the Fenlands. Mr Chips, as the boys call him, is conventional in his beliefs and exercises firm discipline in the classroom. His views broaden, and his pedagogical manner loosens after he marries Katherine, a young woman whom he meets on holiday in the Lake District. Katherine charms the Brookfield teachers and headmaster, and quickly wins the favour of Brookfield's pupils. Despite Chipping's mediocre credentials and his view that Greek and Latin (his academic subjects) are dead languages, he is an effective teacher who becomes highly regarded by students and the school's governors. In his later years, he develops an arch sense of humour that pleases everyone.

Although the book is unabashedly sentimental, it depicts the sweeping social changes that Chips experiences throughout his life: he begins his tenure at Brookfield in September 1870, at the age of 22, as the Franco-Prussian War was breaking out; he dies in November 1933, at the age of 85, shortly after Adolf Hitler's rise to power.

Inspiration
The setting for Goodbye, Mr. Chips is probably based on The Leys School, Cambridge, where James Hilton was a pupil (1915–18). Hilton is reported to have said that the inspiration for the protagonist, Mr. Chips, came from many sources, including his father, who was the headmaster of Chapel End School. Mr. Chips is also likely to have been based on W. H. Balgarnie, a master at The Leys (1900–30), who was in charge of the Leys Fortnightly (in which Hilton's first short stories and essays were published). Over the years, old boys wrote to Geoffery Houghton, a master at The Leys and a historian of the school, confirming the links between Chipping and Balgarnie, who eventually died at Porthmadog at the age of 82.[5] Balgarnie had been linked with the school for 51 years and spent his last years in modest lodgings nearby. Like Mr. Chips, Balgarnie was a strict disciplinarian, but would also invite boys to visit him for tea and biscuits.[6]

Hilton wrote upon Balgarnie's death that "Balgarnie was, I suppose, the chief model for my story. When I read so many other stories about public school life, I am struck by the fact that I suffered no such purgatory as their authors apparently did, and much of this miracle was due to Balgarnie."[6] The mutton chop side whiskers of one of the masters at The Leys earned him the nickname "Chops", a likely inspiration for Mr Chips' name.[6]

In Hilton's final novel, Time and Time Again (1953), protagonist Charles Anderson bears clear biographical similarities to Hilton himself.[citation needed] Early in the novel, Anderson briefly reminisces about attending Brookfield and knowing "Chips".