Sarah and Jeremy Fitzoliver are vacationing in Italy when they run into the Brigadier, who is visiting a distant relation at an Italian castilo. American mobster Max Vilmio is trying to seize control of the castilo from the Brigadier's Uncle Mario, and the Brigadier is providing moral support -- until Vilmio's actions become more overt and violent, at which point the Brigadier is forced to respond in kind. To make matters worse, ghosts and demons begin appearing at the castilo, and the Brigadier calls in the Doctor to investigate. The Doctor determines that the castilo sits over a fracture into Null-Space, an alternative dimension where the spirits of the uneasy dead are trapped, unable to abandon the ties to their earthly lives and move on to the next level of existence. Their fears are given physical form as demons and fiends, and if the barrier breaks the Earth will be flooded with all of the evil in N-Space.

The Doctor and Sarah travel back in Time to investigate the creation of the fracture -- and find that Max Vilmio is in fact Maximilian Vilmius, a medieval astromancer who opened the fracture with an alchemical formula which he believed would give him eternal life and power. While the Doctor investigates Vilmius' activities, Sarah helps Guido, the Duke's young son, who deserted the army due to a disagreement with his lord's policies and now must face his disapproving father. Guido leaves the court to make a new life as a wandering minstrel, while the Doctor and Sarah sabotage the castilo's clock, causing Vilmius to miss the vital conjunction. He is sealed inside the wall of the castilo when the fracture closes up on him.

But the danger still isn't over, as the Doctor and Sarah discover when Sarah realizes the ghost she encountered on her first visit to the castilo is the spirit of a young woman from the early 19th century. The young woman and her lover, the castilo's gardener, try to break open the castilo wall where Vilmius was sealed, believing there to be buried treasure inside, but the release of power destroys part of the castilo and casts Giuseppe to his death. Louisa, broken-hearted, commits suicide, while Vilmius is released to try his luck again -- this time during the next astral conjunction, in the 20th century.

The Brigadier and Jeremy fight off Vilmio's mob, assisted by Mario, Vilmio's disillusioned gun-moll Maggie and the young singer Roberto from the local village. However, they find themselves facing a war on two fronts as the castilo is stormed by fiends from N-Space. The Doctor and Sarah return to the 20th century but are too late to help; although an uncharacteristically clever idea from Jeremy deals with the attacking mobsters, Maggie is killed and Vilmio passes through the fracture into N-Space.

The Doctor re-opens the fracture and passes through with Sarah to battle Vilmio on his own territory. Sarah's vision of the Doctor as a white knight on shining armour becomes reality on the other side of the fracture, and the Doctor successfully slays the Vilmio-dragon. Sarah remains behind in N-Space to help the ghost of Louisa pass on to the next plane of existence, but as the Doctor is unable to close up the fracture until she returns, the delay causes Vilmio to recover and emerge from N-Space, having absorbed its energies into his body. The Doctor challenges Vilmius to strike him down, and as Vilmio gathers all his power together, the Doctor shuts down the fracture at the critical moment, causing Vilmio's body to overload and disintegrate while all the evil forces in his body dissipate harmlessly into space.