After the events of the previous episode, Ash and his friends are heading to Lavender Town so Ash can catch a Ghost-type Pokémon to use against Sabrina. As they are hiking, the fog intensifies and Brock suggests that everyone should hold hands. Ash and Misty link up but Brock cannot find them. Brock reaches towards Ash’s hand, but mistakenly grabs Pikachu's tail, resulting in Pikachu shocking Brock. Ash scares everyone by wearing a skull mask. He wants to help them get over their fear, but it makes everyone angry, including Pikachu, who shocks him.
The group arrives in Lavender Town and reaches the Pokémon Tower by dark. Misty and Brock want to let Ash go in alone, scared off by the tower. Ash still wants to go in, but Pikachu does not, wanting to sleep. Ash gets his sleeping bag and wants to hold until the morning, but Misty wakes them up by smacking a gong. Meanwhile, Team Rocket watches them from one of the windows inside the tower. James runs off, but he falls through a hole in the floor. Jessie and Meowth look down and see James, but Meowth notices a closet opening nearby, a Gastly coming out and scaring Meowth. Meowth points to it, but it disappears before Jessie sees it. Gastly goes over Jessie's face, mimicking Jessie’s speech, and Meowth attacks, scratching Jessie. Jessie angrily uses a pan to knock Meowth around and down into the hole with James. Jessie looks at herself in a mirror and sees Gastly, scaring her enough to send her falling down the hole with the others. The three of them open another hole and fall down, the scream audible to Ash and the others. Team Rocket gets back up, but Gastly scares them again, knocking them out.
Outside, Ash and his friends decide to go in, but Misty and Brock push Ash forward first. They enter the tower, and the door closes on its own, putting them into a pitch-black room. Ash sends out Charmander to light the room with a Flamethrower, but it exhausts the Pokémon. Brock finds a candle and Charmander uses Flamethrower to light the candle, but it unintentionally torches Brock. Ash and his friends find the hole in the floor as they explore, hearing strange noises echoing. In another portion of the tower, a Haunter and Gengar are watching TV, laughing at the comedy show broadcast. Gastly comes into the room and they all laugh.
Ash and co. continue exploring, entering a larger room. The room suddenly lights up as they make it out as a dining room, the table fully set. There is a rope above the table that has a note saying, “Pull this.” Ash pulls it and it releases confetti and a sign saying, “Welcome.” Suddenly, the glassware and chairs begin to levitate. Brock gets thrown around in a chair while Pikachu and Charmander get thrown around on platters. Ash and Misty run out of the room as Brock and the Pokémon jump off and run out. The tableware and chairs reset as the Ghost Pokémon show up, laughing at the mischief.
Outside, everyone is exhausted from running, Misty and Brock fully convinced not to go back in. Ash still wants to go in, but his Pokémon are not as willing. Ash tries to convince them as Pikachu remembers losing to Kadabra. Ash and his Pokémon are willing to take another shot, but Misty and Brock still want to stay behind. They go back inside and face the hole Team Rocket created earlier. Ash checks his Pokédex about Ghost Pokémon as they approach the hole. They hear commotion and think the Pokémon are down there. Pikachu attacks with ThunderShock, hitting Team Rocket. Charmander uses Flamethrower to burn Team Rocket, creating a fire. Ash throws a Poké Ball, but it hits Jessie in the face. Jessie gets angry as her hair catches fire. She runs around, creating a fireball from Ash's view. Haunter gets behind Ash as Pikachu spots it and freaks out, but Ash misses it. Haunter appears in front of Ash and spooks him as he checks his Pokédex. There is no data, so Ash sends Charmander, but the Pokémon disappears. It appears behind Ash and taps his shoulder. He thinks it's Pikachu, but he sees the hand and spooks out. Ash sends Charmander to use Leer. They both pull off fierce looks, but Charmander suddenly makes a funny face, making Haunter laugh. Ash scolds it as Charmander scratches his head, but Haunter appears in front of Charmander and Licks him.
Ash recalls Charmander, Haunter still laughing. Gengar materializes through the floor right in front of Ash before smacking him with a fan. Both ghosts are laughing as Ash checks his Pokédex, but there is still no information. Gengar smacks Haunter with the fan and laughs, but Ash does not find it funny. They try to make Ash laugh, but it does not work. The Pokémon are clearly upset as they sink into the floor. Ash and Pikachu jump after them to stop them, but they miss, Ash crashing into the floor. The rattle drops a chandelier on top of them, knocking them out. Pikachu lights the chandelier with electricity. The Ghost Pokémon applaud at the show, but when the chandelier loses electricity, Gengar taps them as Haunter goes up to them and pulls ghost forms of Ash and Pikachu out. They wake up and are shocked at seeing their bodies on the ground. The Ghost Pokémon takes Ash and Pikachu to the top of the tower. Outside, they admire the view as Ash sees Misty and Brock waiting. Ash listens in on the conversation as Misty mentions that he is taking too long, wanting to go in and check on him. Ash speaks as Misty looks behind her, hearing Ash’s voice. Ash pulls Misty into the air before dropping her, Brock catching her. Misty gets up and runs into the tower, Brock following, while Ash and Pikachu fly with the Ghost Pokémon. Haunter gets in front of Ash as he goes through Haunter’s mouth. Everyone laughs, having fun.
The Pokémon take Ash and Pikachu to a room holding several toys. The Ghost Pokémon were not trying to scare people, as they just wanted new playmates. Ash has to turn down the playtime in order to continue his quest, upsetting the Ghost. Meanwhile, Misty and Brock find Ash and Pikachu’s bodies, pulling them out from under the chandelier and trying to wake them. Both are clearly worried, but Misty voices more concern for Ash. Ash and Pikachu return to their bodies and wake up. Misty and Brock are relieved that they are okay, with Misty on the verge of crying.
They leave the tower the next day, Ash deciding not to catch the Ghost Pokémon. He wants to use humor, as Pikachu points out. Haunter is behind them and scares Misty and Brock away. Haunter decides to join Ash. Meanwhile, the Ghost Pokémon tie Team Rocket onto the carousel and send them spinning.