The story is set circa 1790 in the Dutch settlement of Tarry Town, in a secluded glen called Sleepy Hollow. It tells the story of Ichabod Crane, a sycophantic, lean, lanky, and extremely superstitious schoolmaster from Connecticut, who competes with Abraham Brom Bones Van Brunt, the town rowdy, for the hand of 18-year-old Katrina Van Tassel, the daughter and sole child of a wealthy farmer, Baltus Van Tassel. As Crane leaves a party he attended at the Van Tassel home on an autumn night, he is pursued by the Headless Horseman, who is supposedly the ghost of a Hessian trooper who had his head shot off by a stray cannonball during some nameless battle of the American Revolutionary War, and who rides forth to the scene of battle in nightly quest of his head. Ichabod mysteriously disappears from town, leaving Katrina to marry Brom Bones, who was to look exceedingly knowing whenever the story of Ichabod was related. Although the nature of the Headless Horseman is left open to interpretation, the story implies that the Horseman was really Brom Bones in disguise.

The Legend of Sleepy Hollow was based on a German folktale, set in the Dutch culture of Post-Revolutionary War in New York State. The original folktale was recorded by Karl Musäus. An excerpt of Musäus:

The headless horseman was often seen here. An old man who did not believe in ghosts told of meeting the headless horseman coming from his trip into the Hollow. The horseman made him climb up behind. They rode over bushes, hills, and swamps. When they reached the bridge, the horseman suddenly turned into a skeleton. He threw the old man into the brook and sprang away over the treetops with a clap of thunder.[1]

The dénouement of the fictional tale is set at the bridge over the Pocantico River in the area of the Old Dutch Church and Burying Ground in Sleepy Hollow. The characters of Ichabod Crane and Katrina Van Tassel may have been based on local residents known to the author. The character of Katrina is thought to have been based upon Eleanor Van Tassel Brush, in which case her name is derived from that of Eleanor's aunt Catriena Ecker Van Tessel.

Irving, while he was an aide-de-camp to New York Gov. Daniel D. Tompkins, met an army captain named Ichabod Crane in Sackets Harbor, New York during an inspection tour of fortifications in 1814. He may have borrowed the name from the captain and patterned the character in The Legend after Jesse Merwin, who taught at the local schoolhouse in Kinderhook, further north along the Hudson River, where Irving spent several months in 1809.[2]

The Legend of Sleepy Hollow follows a tradition of folk tales and poems involving a supernatural wild chase, including Robert Burns's Tam O' Shanter (1790), and Bürger's Der wilde Jäger, translated as The Wild Huntsman (1796).