Arriving at LAX, Dr. Richard Thorndyke has a series of unusual encounters including a flasher pretending to be a police officer and a passing bus filled with an entire orchestra. His driver and photographer, Brophy, takes him to the Psycho-Neurotic Institute for the Very, Very Nervous, where he’s replacing the mysteriously deceased Dr. Ashley—an event that Brophy suspects may not have been accidental. Upon arrival, Thorndyke meets the staff: Dr. Philip Wentworth, Dr. Charles Montague, and Nurse Charlotte Diesel, while reuniting with his former mentor, Professor Vicktor Lillolman. Struggling with high anxiety, exacerbated by the institute's cliffside location, Thorndyke finds solace in Lillolman's guidance.
As time progresses, Thorndyke becomes intrigued by peculiar noises emanating from Diesel's room, leading him and Brophy to investigate. Diesel attributes the sounds to the TV, but they're actually the result of a heated BDSM session involving Montague. The following morning brings more oddities when Thorndyke notices a bright light shining through his window from the violent ward. Montague reveals that the source of the light is patient Arthur Brisbane, who believes he is a Cocker Spaniel.
Conflicts arise when Wentworth expresses his desire to leave the institute, leading to a quarrel with Diesel. After being allowed to depart, he tragically meets his end in a freak accident caused by an intense blast of rock music from a rigged radio, which results in his ears hemorrhaging and a fatal stroke.
Thorndyke and Brophy then travel to San Francisco for a psychiatric convention. At the Hyatt Regency, he learns that Mr. MacGuffin has mysteriously altered his reservation, placing him in a top-floor room. In a comical encounter, Thorndyke finds himself in a chaotic situation with a bellboy, who in a frenzy, mimics stabbing him with a newspaper while yelling, > "Here's your paper! Happy now?! Happy?"—the ink running down the drain during this bizarre moment.
After this incident, Victoria Brisbane, the daughter of Arthur, bursts through his door, pleading for his help to rescue her father from the institute. She alleges that Diesel and Montague are inflating the illnesses of wealthy patients for financial gain. Upon learning that the patient he met wasn’t actually the real Arthur, Thorndyke deduces that Dr. Ashley discovered Diesel and Montague’s scheme, leading to his untimely demise before he could act against them; thus, Thorndyke vows to assist Victoria.
In a bid to thwart Thorndyke, Diesel and Montague enlist the aid of "Braces," a malevolent figure connected to Ashley and Wentworth's deaths. He is tasked with impersonating Thorndyke and carrying out a murder in the lobby. In this predicament, Thorndyke faces the challenge of proving his innocence. Following a hilarious and chaotic scene involving pigeons, he reconnects with Victoria, realizing that Brophy captured a photograph of the shooting incident, conveniently placing the real Thorndyke in an elevator at that moment.
Brophy successfully enlarges the photograph, revealing Thorndyke's presence, but soon befalls misfortune as Diesel and Montague capture him and take him to the North Wing. Meanwhile, "Braces" confronts Thorndyke at a phone booth but meets his end when Thorndyke, in an act of self-defense, stabs him with a shard of glass. Thorndyke and Victoria make their way back to LA, rescue Brophy, and find Diesel and Montague attempting to take the real Arthur Brisbane to a tower for a grim fate.
Thorndyke’s paralyzing anxiety serves as a significant barrier to ascending the tower's treacherous stairs to aid Brisbane, yet with encouragement from Lillolman, he conquers his fears. He successfully sends Norton, the orderly, tumbling out of a tower window, thus saving Brisbane. In a final confrontation with Diesel, she attacks Thorndyke but ends up plunging to her end on the rocky cliffs below, cackling madly all the while. Montague is incapacitated by a trapdoor, and at last, Victoria is joyfully reunited with her father. In a culmination of events, she marries Thorndyke, and they excitedly set off on their honeymoon.
