Newlyweds Peter (David Manners) and Joan Alison (Julie Bishop), on their honeymoon in Hungary, learn that due to a mixup, they must share a train compartment with Dr. Vitus Werdegast (Béla Lugosi), a Hungarian psychiatrist. Eighteen years before, Werdegast went to World War I, never seeing his wife again. He has spent the last 15 years in an infamous prison camp in Siberia. On the train, the doctor explains that he is traveling to see an old friend, Hjalmar Poelzig (Boris Karloff), an Austrian architect.

Later, the doctor, Peter, and Joan, share a bus, which crashes on a desolate, rain-swept road. Joan is injured, and the doctor and Peter take her to Poelzig's home, built upon the ruins of Fort Marmorus, which Poelzig commanded during the war. Werdegast treats Joan's injury, administering the tranquilizing drug hyoscine, causing her to behave erratically. While Peter puts her to bed, Werdegast accuses Poelzig of betraying the fort during the war to the Russians, resulting in the death of thousands of Austro-Hungarian soldiers. He also accuses Poelzig of stealing his wife Karen while he was in prison. Previously, Werdegast killed Poelzig's black cat, and Poelzig explains that Werdegast has a strong fear of the animals. Poelzig carries a second black cat around the house with him while he oversees his "collection" of dead women on display in glass cases, including Karen.

Poelzig plans to sacrifice Joan in a satanic ritual during the dark of the moon. Poelzig had married Werdegast's wife, and when she died, he married his daughter (who was told her real father died in prison). He is seen reading a book called The Rites of Lucifer while a beautiful blonde woman (Lucille Lund) sleeps next to him. The blonde is Werdegast's daughter – thus, Poelzig's stepdaughter – also named Karen. Werdegast, who is unaware of his daughter's presence, bides his time, waiting for the right moment to strike the mad architect. He also tries to persuade his foe to spare Peter and Joan, at one point gambling with their lives by playing a game of chess with Poelzig, which he loses.

This moment comes during the beginning of the satanists' service, when a female acolyte sees something which causes her to scream and faint. Werdegast and his servant Thamal (Harry Cording) snatch Joan from the sacrificial altar and carry her into the catacombs beneath the house, where Peter is rendered unconscious by Poelzig's servant. Joan tells Werdegast his daughter is alive in the building somewhere. He discovers that Poelzig has killed his daughter, and in an insane rage, shackles him to an embalming rack, where he proceeds to skin Poelzig alive. Joan tries to tear a key from the dead hand of Poelzig's servant, and Peter, regaining consciousness, mistakes Werdegast's attempt to help her as an attack and shoots him. Fatally wounded, Werdegast blows up the house, first letting the couple escape but with Poelzig's "rotten cult" still upstairs. "It has been a good game", he says before he dies.