Tun-Huang is a fictionalized account of how a trove of scrolls came to be stored in a sealed cave between the Taklamakan and Gobi deserts. The sealed cave, Cave 17 of the Thousand Buddha Grottos was excavated in the early 1900s and the texts unearthed therein spanned centuries, religion, and language. Most were Buddhist texts, such as a copy of the Diamond Sutra that proves to be the oldest woodblock printed work ever found. Other diverse finds involve Manichean texts, critical to our understanding of that religion, Nestorian Christian texts, and a prayer in Hebrew. It's an archeological find that sparks the imagination, and Yasushi Inoue spins a narrative towards it.

The tale is centered around Hsing-te, and administrative official in 11th century Song China that journeys north after sleeping through his civil service examination. Most of the novel takes place in the Gansu corridor, between the undulating borders of the Song, Western Xia, and Tibetan and Turkic tribes. Early his travels he becomes second in command to Wang-li a military commander saves a Uighur princess in a watchtower of an abandoned town. She assumes her fiancé dead and since Hsing-te, despite forcing himself on her, is otherwise kind and offers to hide her.

Three other characters are involved with this Uighur girl romantically. Hsing-te is ordered to go east to learn to write the Hsi-Hsia language. He asks Wang-li to watch over her in his absence. Wang-li initially refuses saying that she's a willful, demanding person who will be the death of anyone who sleeps with her, but eventually agrees. The Uighur girl has two moonstone necklaces and gives one to Hsing-te to remember her by. These necklaces pass hands over the course of the novel and are important symbols of the Buddhist vice of attachment. These moonstones could be seen as diamonds, or fake diamonds, and the reader should note a connection to the Diamond Sutra.