Immediately following his presumed death at the conclusion of Phantasm II, a new version of the Tall Man emerges from the white room's dimensional fork. Meanwhile, the hearse transporting Liz and Mike continues on its journey, ultimately resulting in a fiery explosion. As chaos ensues, Reggie, who has been attacked by the Alchemy/Tall Man creature, rushes to the scene only to discover Liz lifeless and a dwarf feasting on her face. Armed with his formidable four-barrel shotgun, Reggie dispatches several dwarfs before confronting the Tall Man. He manages to frighten the Tall Man into retreat by threatening a grenade, but the Tall Man makes it clear he intends to return for Mike once he has healed, leaving with Liz's head in hand.
After spending what seems like two years in a coma, Mike experiences a near-death vision where his brother Jody appears, insisting he is not ready to cross over into the light. As Mike attempts to continue his journey, the Tall Man obstructs his path, forcing him to awaken. Just as Reggie arrives, Mike is ambushed by a demon nurse but bravely fights her off. A sphere erupts from her head, shattering through the window. Back at home, Jody appears once again to caution Mike, but before they can act, the Tall Man arrives through a dimensional portal. He combats both Reggie and Jody, who has now transformed into a charred flying sphere, before pulling Mike through the gate with him.
The following morning, Reggie, accompanied by the Jody-sphere, ventures to the eerily deserted town of Holtsville. Despite being captured by three looters who lock him in his car's trunk, he is rescued by a young boy named Tim, who takes out the attackers. Together, they bury the looters in the yard, and Tim shares the grim tale of how the Tall Man took his parents and obliterated the town. However, their graves are found empty come morning, as is their pink hearse, pushing them to locate the Tall Man.
Venturing into the Holtsville mausoleum, Reggie is met by a hostile sphere. Before he can destroy it, he is overpowered by two young women, Tanesha and Rocky. Despite his warnings, the sphere eliminates Tanesha, severely damaging Rocky's nunchaku. With Tim's intervention, they manage to shoot the sphere out of the air. Uniting their strengths, the trio sets out for Boulton, a town with a large mortuary. While camping out, the Jody-sphere guides Reggie in a dream to the Tall Man's hideout, where Mike is imprisoned. Though they manage to liberate him, the Tall Man soon appears, initiating a frantic chase. In a twist, Jody transforms back into a sphere, prompting Reggie to wake up and close the gate just in time to sever the Tall Man's hands.
Their ordeal leads them to Boulton's mortuary, where they stumble upon a cryonics facility that reminds Mike of the Tall Man's aversion to cold. During a tense confrontation, Mike learns from the Jody-sphere that the Tall Man is amassing an army from the dead, fashioning dwarf creatures from their remains. The Tall Man, sensing their presence, paralyzes Mike, who then finds himself helpless on the operating table as the Tall Man welcomes him. Outside, Rocky battles attackers and Tim escapes briefly before confronting more looters.
In a climactic showdown, Rocky manages to strike the Tall Man with a spear dipped in liquid nitrogen, causing his body to begin to melt. Working together, Rocky and Reggie trap him in a refrigerator room, but not before a golden sphere bursts forth from his head, wreaking havoc. In a twist of fate, Reggie grapples with the powerful sphere, managing to neutralize it with the nitrogen tank with the help of Rocky and Tim.
As Mike awakens to find yellow blood oozing from his wound, he struggles with the realization of a golden sphere developing in his own head. After the tall man's sphere is vanquished, Mike emerges, now seemingly cold and different, warning Reggie to keep his distance. While Reggie contemplates exploring the mortuary further, Rocky decides to leave, fed up with the undead threats, while Reggie and Tim head back inside. Tim reveals Mike's ominous message: "There are thousands of them." Unbeknownst to them, a multitude of spheres looms above, heralding an ominous danger that is a signature of this franchise's suspenseful ending.
