The fishing town of Antonio Bay in California is about to celebrate its centennial. With preparations for the celebration underway, the centennial is also marked by a series of ominous events, including the appearance of a supernatural glowing fog that spreads over land and sea and moves against the wind.
The night before the town's celebration, Father Malone, the town's priest, finds his grandfather's diary from a hundred years earlier. The diary reveals that in 1880, six of the founders of Antonio Bay (including Malone's grandfather) deliberately sank and plundered a clipper ship named the Elizabeth Dane. The ship was owned by Blake, a wealthy man with leprosy who wanted to establish a colony near Antonio Bay. During a foggy night, the six conspirators lit a fire on the beach near treacherous rocks, and the crew of the ship, deceived by the false beacon, crashed into them. Everyone aboard the ship perished. The six conspirators were motivated both by greed and disgust at the notion of having a leper colony nearby. Antonio Bay and its church were then founded with the gold plundered from the ship.
As midnight strikes and the date of the town's centennial begins, three local fishermen are gruesomely murdered by supernatural attackers after the fog covers their trawler whilst out at sea. A ghostly looking clipper ship is seen pulling alongside their fishing trawler. The mysterious fog contains the vengeful ghosts of Blake and the clipper ship's crew, who have come back on the hundredth anniversary of the shipwreck and the founding of the town to take the lives of six people (symbolic substitutes for the six conspirators).
At the same time, town resident Nick Castle drives down a country road and picks up a young female hitchhiker named Elizabeth Solley. While the two drive towards town, the radio and headlights of Nick's truck start to fail and all the windows inexplicably shatter. At the same time, various odd phenomena begin to happen all over the sleeping town (objects move by themselves, television sets turn themselves on, gas stations seemingly come to life, and all the public payphones ring simultaneously).
The following morning, local radio DJ Stevie Wayne is given a piece of driftwood that was found on the beach by her young son Andy. The driftwood is inscribed with the word "DANE". Intrigued by the object, Stevie keeps it and takes it with her to the lighthouse where she broadcasts her radio show from. Stevie sets the piece of wood down on top of a tape player that is playing, and while she is momentarily distracted, the wood inexplicably begins to seep water. The water spreads and causes the tape player to short out. Suddenly, a mysterious man's voice emerges from the tape player swearing revenge, and the words "Six Must Die" appear on the wood before it bursts into flames. A shocked Stevie quickly extinguishes the fire, but afterwards, she sees that the wood once again reads "DANE" and the tape player begins working normally again.
Nick and Elizabeth search the boat where the fishermen were killed, and Elizabeth finds the corpse of Dick Baxter with his eyes gouged out. The other two fishermen are nowhere to be found. They then take Baxter's body to the local coroner's office to be examined by Dr. Phibes, who is perplexed by the body's advanced state of decomposition considering Baxter died only hours earlier. Whilst Elizabeth is alone in the autopsy room with Baxter's corpse, the body becomes momentarily re-animated. It rises from the autopsy table, grabs a scalpel, and walks over to Elizabeth. As Elizabeth screams, Nick and Phibes rush back into the autopsy room, where they see the corpse lifeless again on the floor. However it appears to have scratched the number "3" into the floor with the scalpel. Baxter was the third victim to die.
That evening, the Antonio Bay centennial celebration begins in the center of town. At the same time, Dan, the local weatherman, calls Stevie at the radio station to tell her that another fog bank has appeared and is moving towards town. As they are talking, the fog gathers outside the weather station and Dan hears a knock at the door. Leaving Stevie on the phone while he goes to answer it, Dan is killed by the ghosts as Stevie listens in horror.
As Stevie begins her radio broadcast, the fog begins moving inland and neutralizes the town's phone and electricity lines. Using a back-up generator, Stevie begs her listeners to go to her house and save her son when she sees the fog closing in from her lighthouse vantage point. Nick and Elizabeth hear this on the car radio and go to help. Meanwhile, at Stevie's home, her son's babysitter, Mrs. Kobritz, is killed by the ghosts as the fog envelops the house. The ghosts then pursue Andy, but Nick arrives just in time to save him and they escape.
As the town's celebration comes to an end, the celebration's organiser Kathy Williams and her assistant Sandy are driving home when they turn on the car radio and hear Stevie warning people about the dangerous fog that is sweeping through the town. Stevie advises everyone to go to the local church, which appears to be the only safe place. Nick, Elizabeth and Andy hear the same message and the group gather at the church. Once inside, they and Father Malone take refuge in a small back room as the fog begins to roll outside. Inside the room, Kathy and Father Malone find a large gold cross buried in the walls. The cross is made of the gold that was stolen from Blake and his people a hundred years earlier. As the ghosts of Blake and his crew begin to assail the church, Father Malone takes the golden cross out into the chapel. Knowing he is the offspring of one of the conspirators, Malone confronts Blake in an attempt to sacrifice himself and save everyone else.
Back at the lighthouse, two of the ghosts try to attack Stevie. She climbs onto the roof, but the ghosts follow and trap her...
Inside the church, Blake seizes the golden cross from Malone, which begins to emit an eerie glow. The church rumbles as the light emanating from the cross becomes brighter and brighter. Nick manages to pull Father Malone away from the cross only seconds before it disappears, along with Blake and his crew, in a blinding flash of light. The ghosts attacking Stevie on the roof of the lighthouse disappear as well, and the fog vanishes. Later that evening, Father Malone is alone in the church, pondering why Blake did not kill him and thus take six lives. At that moment, the fog reappears along with Blake and his crew. Blake swings his sword at Father Malone's head