At the Bodega Bay Inn, Danny Coogan is busy crafting wooden chairs for a wedding reception while his Uncle Uncle Len runs the hotel. Danny confides that, if not for his limp, he would be headed to war alongside his brother, Don, and he promises to help André Toulon. Toulon is a guest at the hotel, a figure whose wife was killed by the Nazis because they coveted a mysterious formula that lets his puppets come alive. After escaping from Berlin to Geneva, Toulon sought refuge in America, hoping to stay hidden from those who hunted him.
The next moment of trouble arrives when Danny heads toward Toulon’s room and encounters a gunshot. Two men dressed in black slip away, one of them briefly revealing a face to Danny before he disappears. He enters Toulon’s chamber to find the puppets in place, but Toulon lies dead with a pistol in his hand. In a wall panel, Danny discovers that the puppets are indeed real and fully animated, along with an unmoving Six Shooter and another puppet named Ninja.
The following day, Danny visits his mother, Elma Coogan, and his brother Don. Don is slated to ship off to war soon, setting up a personal stake for the family in the looming conflict. Meanwhile, two Nazi assassins, Klaus and Max, converge on an Opera House in Chinatown, where they meet a Japanese saboteur named Ozu. Ozu explains a joint mission under orders from The Emperor: to destroy an American bomb manufacturing plant by using Max to infiltrate the plant and get close to Beth, the young woman who runs the office and who is also Danny’s girlfriend.
The next day, after Danny has brought the puppets to life, he enters the plant to show them to Beth and spots Max. He tries to warn Beth, but she does not believe him. After Max leaves, Danny trails him back to the Opera House and uncovers the broader plan. Max sees Danny and alerts Klaus, who then targets the people at Danny’s home. Klaus shoots Elma and abducts Beth, and he also shoots Don when Don comes home unexpectedly. Danny returns to a house drenched in danger, finding Don bleeding to death, and, with Toulon’s diary as his guide, transfers Don’s soul into Ninja’s body. With this new connection, Danny and the puppets set out for the opera house to rescue Beth.
At the opera house, Tunneler and Leech Woman overpower Ozu’s men, while Ninja and Pinhead strike Klaus down. Danny manages to save Beth, but Ozu inflicts a serious wound on Ninja. In a tense standoff, Danny and Blade threaten Ozu with the active bomb, forcing her to back off. Max seizes the moment to deactivate the device, and Ninja—though gravely hurt—uses his remaining strength to stab Ozu’s sword into Max’s back, killing him. Ozu escapes with Tunneler and, apparently, Jester and Leech Woman in a bag, leaving behind Blade, Pinhead, and a mortally wounded Ninja. With Beth safe for the moment and the immediate threat neutralized, Danny vows that Ozu has a war coming to her, signaling that the conflict is far from over and that the puppets will stand as guardians against these dangerous forces.
