Set in a California suburb, the plot focuses on the Freeling family whose home is invaded by malevolent ghosts.

The Freelings have three children: Carol Anne, Robbie, and Dana.

First conceived as a dark horror sequel to Close Encounters of the Third Kind entitled Night Skies, the script was altered when Steven Spielberg approached Tobe Hooper to direct. Hooper was less keen on the sci-fi elements and suggested the idea of a ghost story.

Carol Anne awakens one night and begins conversing with the family's television set, which is displaying static following a sign-off. A ghostly white hand emerges from the television, after which there is a violent earthquake. As the shaking subsides, Carol Anne announces "They're here".

Bizarre events begin to occur, including chairs that spontaneously stack themselves in the Freeling kitchen.

When the family's canary bird unexpectedly expires, Carol Anne saves "Tweety" from being unceremoniously flushed down the toilet. She carefully prepares a cigar box for its burial, adding items: 1) a piece of red licorice (for when he's hungry) 2) a polaroid picture of Carol Anne, Robbie, and the family dog (for when he's lonely) and 3) a yellow napkin (for when it's nighttime).

When the television keeps switching itself to Mr. Roger's Neighborhood, Steven believes he is merely having a battle of 'remote controls' with his neighbor Ben Tuthill.

The Freelings build their house next to a big oak tree. Steven tells his son Robbie that he built the house next to the tree so it could protect them, claiming that it is a "very wise old tree". But the tree comes to life during a thunderstorm, smashing through the wall and abducting Robbie.

While Steve rescues Robbie from the possessed tree, Carol Anne is sucked into a portal that appears in her closet.

Tangina informs the Freelings that the ghosts inhabiting their house are lingering in a different "sphere of consciousness" and are not at rest.