In 1979, Snoop Dogg is a numbers runner who is loved in his neighborhood as its member and protector. He is betrayed and brutally murdered by corrupt cop Lupovich and drug pusher Eddie Mack who then force Jimmy's associates Jeremiah and Shotgun to take turns stabbing him to death. Pam Grier, who had been the only one to refuse, tries to kill herself instead but is stopped by Snoop Dogg's spirit, which proceeds to protect her. This results in Pearl taking her dress and burying him with it. Afterwards, Bones' elegant brownstone building becomes his own tomb and is closed.
Twenty-two years later, the neighborhood has become rundown because Bones' absence cleared the way for drugs to enter the neighborhood. Four teens, Patrick, his brother Bill, their step-sister Tia and their best friend Maurice, buy the Bones house to turn it into a nightclub. In the process, Tia finds a black dog who is actually the physical manifestation of Jimmy's spirit. As the dog kills and eats victims, Jimmy is slowly resurrected.
Patrick meets Pearl, who remains in the neighborhood, and her daughter Cynthia, whom he immediately is attracted to. Exploring the basement, Patrick, Cynthia, Bill, Tia, and Maurice find Jimmy Bones' remains and realize he was actually murdered. The five decide to keep quiet about the murder and bury the remains. Jeremiah, father to Patrick and Bill and Tia's stepfather, finds out about their plan to open the club at Bones' old building. He freaks out and demands that Patrick and the others leave the building. Patrick, Bill, and Tia refuse his request and open the nightclub, in spite of their father's objections. On opening night, Maurice is lured into an upstairs room and mauled to death by the black dog, fully resurrecting Jimmy.
Jimmy proceeds to set the club on fire, scaring off the club goers, and begins his revenge. Shotgun, now an alcoholic from the guilt of killing Jimmy, tells Pearl how they should have burned the building down a long time ago. After the incident, Pearl admits to Cynthia that Jimmy Bones is her father, as she had a relationship with him. Jimmy first confronts a guilt-ridden Shotgun and mercy kills him in an act of forgiveness. Patrick confronts his father and demands to know if he helped murder Jimmy Bones twenty-two years earlier. Jeremiah admits to betraying Bones to make money and leave the neighborhood, having been fed up living in Bones' shadow. He also allowed drugs into the neighborhood as long as he got paid for it.
Later, Jimmy confronts Eddie Mack in his home and decapitates him, keeping the head alive and containing his soul. He does the same to Lupovich. Pearl, knowing that Jeremiah is next, goes with Cynthia to his house to rescue him. They end up being too late. Pearl, Cynthia, Patrick, Bill, Tia and Jeremiah's wife Nancy watch him get dragged off by Jimmy, leaving nothing but a melted hole in the window. Jimmy brings Jeremiah back to his old house, along with the heads of Lupovich and Mack. Jimmy sends Lupovich and Mack to hell for all eternity while Jeremiah begs for his life.
Patrick, Cynthia, Bill, and Pearl go underground to find that Jimmy Bones' body has disappeared. Pearl tells them that in order to put Jimmy to rest, they have to destroy the dress she wore the night Jimmy was murdered which was buried alongside him, as his blood which splattered onto it still contains his spirit and is the only thing keeping him anchored to the world of the living. As they look for Jimmy, Pearl steps in the elevator which closes and goes up. Meanwhile, Jeremiah asks Jimmy what he wants. He asks Jeremiah if he could give him his life back. When Jeremiah says he can't do that, Jimmy sends him to hell.
Pearl gets off the elevator and walks into a room that is filled with ignited candles. She has a flashback and Jimmy appears and puts the bloody dress on her. Patrick, Cynthia, and Bill head to the second floor where they see a ghostly Maurice, who leads Bill in the wrong direction where he is captured and killed. Patrick tries to reach him but is too late. Patrick and Cynthia make their way to the room where Pearl and Jimmy are; Patrick knows it is a trap. As Cynthia is lured to Pearl and Jimmy, Patrick hears his father's voice in a mirror begging for help. When Patrick hesitates, Jeremiah chokes him. Patrick uses his knife to chop Jeremiah's arm off and he disappears into hell. Patrick goes after Jimmy, who grabs Patrick by the throat as Cynthia begs him to let go. Pearl, realizing what is happening, tells Jimmy she loves him before grabbing a candle and setting herself and the dress on fire.
As Jimmy and Pearl both die together, Patrick and Cynthia escape, barely making it out before the entire building collapses. Before jumping to safety, Cynthia is briefly pulled back into the building by an unseen force (her father possessing her after his previous anchor, the bloody dress, was destroyed by Pearl). Outside, Patrick finds an old picture of Jimmy and Pearl as Jimmy's face turns to him and says, "Dog eat dog, boy." Too late, Patrick realizes that Cynthia has Jimmy's blood within her, and turns around as Cynthia, now possessed by Jimmy, smiles at him and vomits a mouthful of maggots into his face.
