Winslow Leach, portrayed by William Finley, is an aspiring songwriter and composer who catches the attention of the nefarious record producer, Swan, played by Paul Williams, during a performance as a backing artist for the nostalgia band The Juicy Fruits, who Swan manages. Swan is captivated by Winslow's music, believing it to be the ideal fit for the grand opening of his imminent concert venue, "The Paradise." However, betrayal looms as Swan sends his loyal accomplice, Arnold Philbin, depicted by George Memmoli, to steal Winslow's composition and claim it for himself. When Winslow arrives at Death Records, Swan’s label, he is summarily dismissed.
Driven by a desire for the truth, Winslow clandestinely enters Swan's luxurious estate, "The Swanage," where he discovers several women rehearsing his music for auditions. Among them is Phoenix, played by Jessica Harper, an aspiring singer who captures Winslow's heart. Unfortunately, Winslow soon learns of Swan's plans to showcase his music without crediting him. After another failed attempt to confront Swan, Winslow is framed for drug offenses and sentenced to life in prison as a result of Swan's manipulation.
Following a grim six months in Sing Sing Prison, where he endures the experimental extraction of his teeth—replaced with shiny metal—Winslow learns that The Juicy Fruits have released a chart-topping hit of his song, leading him to a desperate escape. He manages to break into Death Records, wreaking havoc, and subsequently infiltrates Swan's factory, where a disastrous accident in the record press leaves his face severely mutilated and his vocal cords destroyed. Believed to be dead after plunging into the East River, Winslow adopts a new identity, the Phantom of the Paradise, donning a striking black leather outfit, long cape, and an owl-like mask to conceal his scars as he sets out for revenge against Swan and his cohorts.
In a dramatic sequence filled with music, Winslow plants a bomb during a performance by The Beach Bums, formerly The Juicy Fruits. Recognizing the Phantom from security footage, Swan offers Winslow a chance to produce his music on his own terms, leading to auditions where the Phantom selects Phoenix as the lead singer. However, Swan's treacherous nature soon reveals itself as he exploits Winslow's trust, replacing Phoenix with the flamboyant glam-rock star, Beef, played by Gerrit Graham, during the show.
After enduring isolation and manipulation, Winslow's frustrations boil over, resulting in a violent confrontation with Swan's bodyguards. As chaos ensues during Beef's performance of a twisted glam-rock version of Winslow's music, the Phantom strikes, shocking the audience. Swan, realizing the potential of Phoenix's talent, attempts to seduce her and make her a star, despite her growing connection to the Phantom.
In a heart-wrenching climax, the Phantom reveals his true identity to Phoenix, urging her to leave the corrupt environment Swan has created. Yet, heartbroken by her skepticism, he retreats to confront Swan. In a fit of rage, after witnessing Swan's betrayal of both him and Phoenix, the Phantom succumbs to despair, stabbing himself. Ultimately, due to an unbreakable contract with the devil, he survives, only to see Swan fully reveal his monstrous form in front of a live audience.
As the wedding between Swan and Phoenix unfolds, the Phantom leaps into action during a dramatic showdown, disrupting the ceremony to save Phoenix from Swan's grasp. In a harrowing finale, with the crowd driven to madness, both the Phantom and Swan face their fates, leaving only a powerful, emotional connection between Winslow and Phoenix amid the chaos. The story culminates with her finally recognizing him as the gentle soul she once met, sharing their last moments as the audience watches, torn between horror and exhilaration. The closing credits pay homage to the cast, showcasing the talented individuals behind the intense performances.
