The Subtle Knife picks up right where The Golden Compass left off. Lyra Belacqua has followed her father, Lord Asriel, to a different world through a doorway he opened at the end of the last book. Determined to find out more about the nature of Dust (the mysterious particles the Church is trying to destroy every knowledge of), Lyra unwittingly finds herself in the middle of hugely pivotal events that could determine the fate of mankind. She meets Will Parry, a boy who, like her, has found his way into a world different from his own a quest to find his father. Led by the alethiometer (the truth-telling device that only she can read), Lyra decides to help Will, as their two quests seem to be related.
That's just the bare-bones description of the plot. There is so much more going on that it's almost impossible to summarize coherently without giving too much away. Pullman is working with five or six interweaving stories, all part of an overarching plot whose scope is nothing short of astounding. It's a mystery that gets slowly unraveled in a perfectly paced and completely engrossing manner; it never feels forced or plodding. Pullman knows exactly what he is doing, allowing the characters and the reader to discover things at the same time so that each new twist is emotional and powerful. The moment when he reveals the truth about Lyra and Lord Asriel, when we discover what Pullman is trying to do, is just mind-blowing. Unless you come to the book with some prior knowledge, nothing can really prepare you for what's revealed in this book and what this true genius of an author has done. I don't want to reveal anything, but I'll just say that if you were shocked by The Golden Compass, it's nothing to what you'll find in the rest of this series. Nothing. No wonder Pullman is so controversial.
The Subtle Knife works perfectly as a middle-of-the-series episode. It resolves or extends the stories of the characters from the first book and sets up what should be a spectacular ending. We're introduced to only a handful of new characters, and these are just as well developed as the ones we're familiar with (who, in turn are further fleshed out). Will, who at first comes off as arrogant and unlikable (to be honest I hated him a little in the first few chapters), is the perfect companion for Lyra. Their relationship is treated with a respect you don't often see when authors deal with children. Pullman clearly has a lot of faith and love for these characters, and in turn so does the reader.
Having already read a good deal of the third book, I can tell you that so far the series remains as strong as ever. It becomes darker with the second book, as more complex themes are worked in, so very young readers might miss out on some things. But Pullman gives his audience a lot of credit, never dumbing things down but trusting in their intelligence. It's an amazing work, a series unlike anything you've read before--fantasy, adventure, religion, love, friendship, war. It has everything. And it just keeps getting better and better.