The Doctor and Chris visit London's Soho district in 1958, where they hope to recover from Roz's death. While dining out they meet the flamboyant Tilda Jupp, who senses that Chris needs company and invites him to her exclusive nightclub, the Tropics. The Doctor returns to the TARDIS to be alone for a while, but stumbles across the victim of a savage knife attack. The young man, Eddy Stone, dies in hospital, where Chief Inspector Harris, assuming the Doctor to be the hospital pathologist, tells him that this is just the latest in a series of killings. And none of the victims had any past; even their most intimate friends or lovers had only known them for a few weeks. The Doctor, intrigued, uses a clue from Eddy's belongings to trace his lover Jack Bartlett, but while talking he and Jack are nearly run down in the street by a black cab which appeared to have no driver.

Chris is reluctant to join in the party at the Tropics, but after speaking to him for a while Tilda introduces him to Patsy Monette, a singer whose husband recently died. She might be just what Chris needs, or vice versa. Chris reluctantly agrees to accompany Patsy to a "gentlemen's club" run by Tilda's friend, the Major, to warn him that the Scraton gang has targeted his club for destruction. Chris and Patsy arrive just as the Scratons firebomb the club, and in the confusion Chris hears Patsy telepathically warning him that another man is trapped in the flames. When the police arrive, they arrest the clubgoers, including Chris, for "bawdy behaviour". Chris is thrown into a cell with the Major, who rapidly develops a fever and gives Chris an important message for Tilda before sinking into delirium.

Jack is confronted by a blackmailer with proof of his homosexuality, but the Doctor senses that the blackmailer knows of Eddy's death already and convinces Jack to follow him back to his lair to learn more. There, they find and burn the evidence of Eddy and Jack's relationship, but before they can leave they are confronted by Gordy Scraton and his psychotic brother Carl. They escape when Jack threatens to smash a crystal globe which he realizes Gordy has some great attachment to. The globe is damaged in their escape, but not destroyed; Gordy can still use it to contact the Devil, who has given him a list of "degenerates" who must be killed before the Devil will grant Gordy control of London's criminal network.

The Doctor visits Harris' police station, where a homeless woman is trying to report that her friends are being eaten by a driverless black cab. He insists upon investigating, and although Sgt Bridie is convinced that the Doctor is a lunatic, Harris agrees to go hunting with him, using Jack as bait to lure the cab out into the open. When the cab makes an appearance they discover that it's not a vehicle at all, but a solid lump of jelly- like material. The Doctor's attempt to escape accidentally results in Jack being consumed by the cab, and the Doctor leaps into the cab to save him. Harris watches in shock as the creature drives off with both the Doctor and Jack inside, smothered in jelly, but the Doctor breathes air into Jack's lungs and puts him in a trance to save his life.

Chris is released with a warning, but the Major remains locked up since he actually ran the club. Chris relays the Major's message to Tilda, telling her that the Major was expecting "new friends". Tilda admits that she and Patsy are aliens fleeing persecution from their homeworld, and Chris agrees to accompany Patsy to the coast where new arrivals are due in. Patsy takes him to a mental institution where she claims her people are being held captive and forced to use their empathic powers as slaves for the British government. A sympathetic orderly smuggles a comatose young woman and a Chinese boy out of the hospital, but is then killed by a faceless man in an orderly's uniform. Patsy, who is beginning to act more and more like a professional Adjudicator, helps Chris to overpower the faceless orderly, and they escape back to the train station. The faceless man follows them, and manages to kill the young woman before Chris and Patsy overpower him and fling him from the train.

The Doctor awakens in the Petruska Psychiatric Institution, surprising Dr Julia Mannheim, who'd assumed he and Jack were dead, more raw material for the construction of Toys. When he claims to be an alien kidnapped from the streets of London by a living black cab, she concludes that he must be a patient overlooked in the shutdown of the Institute. She is nevertheless shaken when the Doctor proves that Jack is still alive, contrary to her assumptions. She explains to the Doctor that Dr Moriah, the head of the Institute, has been using government funding to create artificial empathic life forms, "Toys", to mirror the needs of psychiatric patients and act as the perfect therapists. Unfortunately one of the Toys, mirroring the dark subconscious desires of its subject, urged a child to climb the roof of the Institute, and he fell to his death. The programme was thus shut down and the Toys are being decommissioned. The Doctor, realizing at least part of the truth, slips away when Dr Mannheim is distracted by Moriah's return.

On the distant planet of Kron'tep, Queen Gilliam slips away from the royal spaceship and the stifling life with a King whose love she does not return. Legend has it that the first king of Kron'tep, the man-god Moriah, killed his unfaithful wife Petruska in a fit of rage and then fled his adopted world in grief; but when Gilliam visits the archaeological dig that was their home she finds a hidden message encoded in Petruska's traditional song of lament and learns that there's more to the story than that. The King sends scientists to help her, hoping to have her back at his side more quickly, but she drives them away; this is something she must do herself. It appears that Petruska, similarly stifled by her husband's obsessive love for her, became lovers with her bodyguard. Together they built an escape route through time and space activated by the crystal globes in Petruska's chamber... but then her lover betrayed her to Moriah, who beat her nearly to death and removed a vital part of the mechanism. Petruska then took her own life in despair, which is why Moriah really fled Kron'tep in grief. Now Gilliam faces a choice of her own -- and she chooses to use the time tunnel to escape from Kron'tep and her own smothering relationship.

The Doctor finds a flesh-mask disguise in a room of "abandoned" Toys, all dead or dying. He awakens Jack, and together they search Moriah's office and find a secret panel behind a painting of a woman who resembles Tilda Jupp. In the caves beneath the Institute, Moriah is communicating with Gordy Scraton via a set of glowing crystal globes; believing that Moriah is the Devil, Gordy is cleansing London of "degenerates" -- the escaped Toys. Moriah agrees to send Gordy some "lost souls" to help his cause, and the Doctor uses the flesh-mask to disguise himself as the notorious gangster Billy Spot so he can keep an eye on Gordy. Jack tries to warn his West Indian roommate Mike that the Scratons are now after his little brother, Dennis, but Carl tracks them down before they can get away. The Doctor tries to keep the situation under control but is forced to shed his disguise when Gordy orders him to kill Dennis as instructed. Jack again threatens to smash the globe if Gordy doesn't release them, but this time it's active, and it transports Jack, Dennis and Mike back to the Institute, directly into Moriah's hands.

The Doctor tries to return to the TARDIS to follow them, but is caught and arrested by Bridie for impersonating a pathologist. He tries to convince Harris of the truth, and after agonising over his decision Harris decides to trust the Doctor and releases him. The Doctor takes him to the Tropics and forces the reluctant Tilda to take them back to the Institute, a place she'd hoped she'd left behind her forever. Shortly after they leave Chris and Patsy return to London, and as nobody is at the Tropics they return to Patsy's house, where they make love. When the cleaning woman arrives she's shocked to see Chris, and furiously lashes out at Patsy for unfaithfulness to her dead husband. Chris is shocked to learn that Patsy's husband died less than a week ago, and storms out of the house in disgust; what kind of person could forget so quickly?

At the Institute, the Doctor, Harris and Tilda find Julia preparing to "decommission" Dennis, having convinced herself that the Toys are not truly living beings but simply tools. The Doctor and Tilda reawaken the doubts she had suppressed within herself and convince her that the Toys are living beings with a right to survive. Moriah captures them and announces that the Toys are his property, simply a necessary step in his project to bring his dead queen back to life. But Queen Gilliam arrives at the Institute, and Moriah collapses in grief when she reveals Petruska's true fate. The Doctor recognizes Gilliam as his former companion Peri, who is still bitter at his betraying and abandoning her so long ago. Nevertheless, she helps him to get his friends out of the Institute as Moriah's faceless orderlies attack, and as they flee through the caves beneath the Institute they meet the remnants of Moriah's true experiments -- twisted, malformed versions of Petruska, all of whom were banished to the caverns after rejecting him.

Back in London, Tilda and the Doctor prepare to throw a party at which the remaining Toys will be matched up with people who need them, just as Tilda has been doing for all the Toys who escaped from the Institute. Thus Jack met Eddy, his dream lover, while Dennis became the homesick Mike's little brother. Chris returns to the Tropics, but when he learns Patsy's true nature he is sickened to realize he was simply projecting his own desires onto her. She is nothing more than a toy, and he will have no part in this charade. The Doctor, surprised, questions Jack and realizes that Jack too is sickened by his understanding that Eddy was only a mirror of his own fantasies. Tilda insists that the Toys need empathic partners in order to survive, but the Doctor realizes that she doens't have one herself. The Toys are stronger than even she had realized, and she finds she is able to bring the remaining Toys to life herself without human partners.

Moriah arrives at the Tropics to demand that the Toys be destroyed; as far as he is concerned they are his belongings and have no life without him. If they are not surrendered he will release an army of his gelatinous black cabs upon London to wreak havoc. Gordy Scraton arrives, still trying to carry out his work for the devil, only to learn that the "Devil" was only Moriah. Still trying to win the devil's favour, Gordy sends Carl to kill Dennis, but Mike fights him off; and the fight attracts attention, passers- by join in, and soon the Notting Hill Riots have been sparked off. Mike beats Carl to death before realizing that Carl too was a Toy, mirroring Gordy's desire for a loyal, loving brother.

Chris returns to Patsy's nightclub to confront her, only to find that, without him, she is fading away and will soon be dead. Patsy leaves the club to lose herself in the streets outside, but Gordy is waiting for her. Chris tries to rescue her, but Gordy shoots him. Moriah's black cab then emerges from the fog and consumes Gordy, while Patsy drags Chris to safety up a fire escape to the roof of a nearby building. The cab climbs the fire escape to get to them, and Patsy sacrifices her life to save Chris by luring the cab over the edge of the building.

With Tilda and Peri's help, the Doctor is able to transform the last blank Toy into the image of Petruska. Until now, Moriah's deep self-loathing and belief that he deserves his queen's rejection have always been mirrored in the Toys he created, but the Doctor is able to use his own telepathy to ensure that the new Petruska won't reject him until they're well away from Earth. The Doctor takes Petruska back to the Institute, unaware that Jack has stowed away in the car boot, determined to help his new friend. Back in the caves, as Moriah embraces his resurrected queen, the Doctor tries to reprogramme the bird-globes to transport them far away -- unaware that one of the faceless Toy-orderlies is creeping up behind him. Jack shouts a warning to the Doctor, and the orderly smashes one of the bird-globes, causing the time tunnel to collapse. The distraction causes the Doctor's attention to slip, and the new Petruska reacts to Moriah's subconscious feelings and rejects him. The furious Moriah attempts to kill the Doctor, but the other rejected Petruskas emerge from the tunnel and hold him back as the Doctor and Jack escape. The time tunnel collapses completely, and the Institute goes up in flames.

The Doctor takes Peri back home to the latter days of the 20th century, having made his peace with her at last. Chris has also made his peace with the Doctor, and accompanies him when the Doctor departs Earth once again. The Toys go on to live lives of their own as ordinary members of the human race.