On a dark and stormy night, Ash and his friends find a deserted town near an old mine. Inside the mine is a Haunter, who scares our heroes away! Team Rocket sees the commotion and investigates, only to receive a scare that sends Wobbuffet running in fear. Team Rocket then discovers that the Haunter was an illusion created by a team of Ghost Pokémon—but why?
Camped out in an empty house nearby, Ash and his friends hear strange music in the night. The music is coming from Kirlia and its Psychic Pokémon friends, all having a dance party! But Abra sleeps right through it, using its psychic powers to block out the noise. Ash and Max accidentally crash the party and scare away the Pokémon, so they make amends by putting on their own party.
Team Rocket learns that the mine's Ghost Pokémon don't like all this noise, so they offer to help restore peace and quiet to the town. Meanwhile, Wobbuffet catches sight of the graceful Kirlia and immediately falls in love. It joins the party and tries to woo Kirlia, but Team Rocket crashes the event with a giant robot that the Ghost Pokémon helped disguise as a huge Haunter. The robot snatches all the Pokémon, and Wobbuffet defies Jessie to free Kirlia and the other Psychic Pokémon.
Kirlia helps defeat Team Rocket and the Psychic Pokémon and Ghost Pokémon face off! Pikachu tries to shock some sense into them, but it's Brock who figures out the solution. The Psychic Pokémon can party inside Abra's soundproof psychic bubble, and the Ghost Pokémon won't hear a thing! With the town back to normal, our friends can continue on their Battle Frontier journey.
Having lost their way again, Max looks at his PokéNav for the nearest Pokémon Center. Brock points out that they have to find shelter for the night before an approaching storm catches them. Pikachu seems to notice something in the distance and suddenly dashes off, leading the group to an abandoned town and connected mine. Brock suggests that the group take refuge in there. From the darkness, two glowing eyes appear and slowly the ghostly apparition approaches the group, scaring them off. Watching from a platform, Team Rocket are feeling rather flat and hungry as they spot the twerps rushing away from something. Meowth notices the mine shaft and suggests ghosts might be inside, so the trio decide to investigate for themselves. The same pair of eyes and apparition appears again. Team Rocket calmly reason that this must indeed be a ghost, and suddenly become horrified when it sticks its tongue out and shrieks at them.
The group are taking cover in one of the abandoned buildings when Ash hears Team Rocket's cry, but no one else does. Everyone remains on edge from their earlier sighting, so Ash slowly looks out of the above window. Everything seems to be desolate as it begins to rain. Brock says that they should stay in this building for the night, which Max questions out of fear.
Meanwhile, Team Rocket is still in the mine and wake up from fainting at the sight of the ghost. Jessie wants to get moving, but she sees the rain outside. James complains that they have to wait the storm out with a goblin in their midst. Jessie laughs hysterically as she reasons that the ghost was merely a hunger-induced hallucination, and the guys agree. They begin to dance and sing about not being afraid of ghosts and start feeling better about the situation. Their revelry is interrupted by another encounter with the creepy apparition. Wobbuffet rushes out of the mine by himself. Still in a frightened state, Jessie and James release their Pokémon in an effort to combat the ghost. Unfortunately, both Seviper and Cacnea are too frightened by the ghost and dash back to their masters. James orders a Pin Missile to stop Cacnea's painful hug, but the attack passes through Haunter with no effect. Seviper uses Poison Tail, but it goes through as well and hits the shaft ceiling. Jessie then throws Meowth in a last-ditch last effort and manages to hit the electrical box on the ceiling. Meowth is electrified and the shaft’s lights all turn on, which makes the ghost tremble and vanish in a swirling cloud. Jessie and James are surprised at this, but then see a group of Ghost Pokémon hiding behind a barrel. Team Rocket are angry at the Pokémon for their illusion and Meowth threatens them with Fury Swipes. The Haunter, Shuppet, two Gastly, and two Duskull cry out in protest, and Meowth says that they have had a tough break.
Ash and his friends are still inside of the building, now sleeping in their sleeping bags. May is the only one awake, still frightened from the run-in with the ghost. Mysterious music starts to come from a nearby room, scaring May even more. She quietly tries to wake Ash from his deep sleep, but it is no use. She then screams which wakes everyone up. They can also hear the music and explore the hallway, finding the source behind a door: a horde of Psychic Pokémon dancing to music from a phonograph. They also see an Abra sleeping with some kind of force field around it. May pushes to get a better vantage point which causes everyone, but Brock, to fall into the room and make their presence known. The Pokémon flee, except for Abra who remains asleep. Ash touches the field, but it powerfully knocks his hand back. Brock says that Abra must be using Safeguard while asleep. Max notices a picture underneath the couch that Abra is sitting on, and on closer inspection it is a photograph of the Psychic Pokémon with a group of miners, leading Brock to think that the Psychic Pokémon helped with the local mining operation. Abra's force field begins to glow with a brilliant, multicolored light. Brock realizes that Abra is showing them a flashback to when the townspeople abandoned the area and the Psychic Pokémon. Tears trickle down Abra’s face as it recalls this sad moment. May figures that the Pokémon must have been cheering themselves up with music after feeling lonesome. Ash suggests that they should give the Psychic Pokémon their own little party, and the others agree. Later that night, the room is decorated and the group calls out to the Pokémon to come inside. All of the Psychic Pokémon return and begin the festivities.
Meanwhile, the Ghost Pokémon tell Team Rocket that they used to live in the mine peacefully before the miners came and turned the area into a booming gold town. After they left, the Pokémon thought that their troubles were over, but the abandoned Psychic Pokémon kept partying loudly in the mine. When the Ghost Pokémon could not stand it anymore, they formed the figure of a gigantic Haunter to scare the Psychic Pokémon away. Upon hearing their plight, Team Rocket plots to side with the Ghost Pokémon and capture the Psychic Pokémon to use their mining skills to find gold.
The next morning, Wobbuffet is still running scared from the "Haunter". He hears the music coming from the Psychic Pokémon’s party and immediately falls in love with Kirlia as it dances on the table. Wobbuffet rushes into the building, to the surprise of Ash and company, and presents a flower to Kirlia as a gift. Kirlia accepts the flower appreciatively, making Wobbuffet giddy with happiness. May remarks on the romantic gesture, but suddenly an explosion rocks the building. All the party-goers but Abra, who is still asleep in its Safeguard bubble, run outside and come face-to-face with the giant Haunter again. Mechanical arms emerge from Haunter's mouth and snatch most of the Psychic Pokémon. The arms retreat to deposit the Pokémon in Haunter's mouth and emerge to knock Wobbuffet out of the way and snatch Kirlia and Pikachu. Wobbuffet heroically jumps into Haunter's maw by itself to save Kirlia. The Haunter’s face begins to contort in discomfort as Jessie's voice chastises Wobbuffet for sabotaging their plan. The Haunter illusion explodes and reveals Team Rocket's new mecha in the shape of a monster, as well as the Ghost Pokémon who disguised it. Team Rocket recites their ghost-themed motto and Wobbuffet cannot help but do its part at the end. Wobbuffet then escapes the arm's grasp and jumps down to the cell holding all the Psychic Pokémon. Team Rocket say that their mecha is immune to Electric and Psychic attacks and laugh when the twerps demand the release of the Pokémon. Wobbuffet desperately tries to break the cell's bars with his arms, but cannot. Wobbuffet breaks the bars with his head. Pikachu and the Psychic Pokémon comically run over Wobbuffet's body, but Kirlia stays behind to show its appreciation. Team Rocket is shocked that Jessie's own Wobbuffet released the Pokémon from their prison. Meowth then directs the Ghost Pokémon to attack, and they launch a combined Shadow Ball at the fleeing Pokémon. Kirlia springs into the air and blocks the Shadow Ball using Reflect before rebounding back at Team Rocket's mecha, destroying it and blasting Team Rocket and Wobbuffet away. Kirlia notices the wilted flower that Wobbuffet handed her.
However, the Ghost and Psychic Pokémon are about to fight. Ash tells Pikachu to use Thunderbolt, hitting the ground between the two feuding groups to stop them. The Pokémon are stunned, but do not listen to Ash's pleas for peace. Brock notices Abra sleeping in its soundproof Safeguard and formulates a plan. Later, the Psychic Pokémon are partying again with loud music coming from the phonograph, but it cannot be heard outside of the much larger Safeguard bubble Abra has created. May commends Brock for his idea, and the Ghost Pokémon are in agreement. With both groups satisfied, the travelers leave the town, ready to take on the Battle Arena.