Olivia meets with Sam Weiss at the bowling alley. He says that it's time to try something else and she needs something to make sense of what she's going through. Sam writes instructions down for her on a piece of paper and tells her that he hopes she doesn't have anything against the color red.
In Seattle, Washington, Greg Leiter comes to the office where he works and goes to see his boss, Carl Langdon. As he walks through the office, he sees his co-workers as demons. He goes into the conference room and sees Carl as a particularly hideous demon. Greg attacks him with his briefcase and smashes his head in. As Carl's assistants pull him off, Greg's eyes twitch madly in their sockets.
Walter and Peter move into their new house and Walter starts setting up his bed in the living room. Astrid comes in with a housewarming gift for Walter and a report for Peter about Carl's murder in Seattle, and the team head for Seattle. As they go to the hospital, Oliver asks the taxi driver for his business card. Detective Green explains that Greg has been unconscious for sixteen hours following the murder and the doctors have just revived him. As the team goes in to talk to him, Walter hesitates outside and then refuses to go in. He watches as Peter and Olivia talk to Greg, who explains that he saw his co-workers as demons and thought that Carl was the leader. Greg abruptly starts to convulse and Peter calls his father in. Before the doctors can do anything, Greg dies, his hair turning white as snow.
Walter performs the initial autopsy but starts to panic again. Before Peter can find out what’s wrong, the medical examiner arrives with the tox screen, confirming Walter’s diagnosis that Greg died of extreme exhaustion despite the fact he had been unconscious for 16 hours. Walter finally admits to Peter he’s been panicking because Seattle smells just like the mental hospital where he was kept. Peter convinces the FBI to ship Greg’s body back to Harvard and assign Agent Kashner to accompany Walter while Peter and Olivia continue the investigation in Seattle. As Walter departs with his new keeper, Olivia asks the medical examiner for his business card.
Peter and Olivia talk to Greg’s wife, who was unaware her husband was having any problems. Peter notices that Greg had books on sleep disorders and confirms that Greg used to sleepwalk. Olivia gets the name of Greg’s doctor while Peter goes over Greg’s sleep journal.
Walter returns to Boston without his luggage, since he was bringing in bottles of raw milk. While Kashner tries to get the luggage released, Walter examines Greg’s body and finds an incision. He asks Kashner to help him remove the scalp.
Peter meets with Olivia at their hotel and tells her that according to the Journal, Greg was having nightmares about demons despite the fact he was getting a full night’s sleep. However, two months ago the nightmares stopped. Peter talks about he had nightmares when he was a child until Walter helped him learn a mantra to protect himself. The police call to inform them that another person, Ellen Rosiello, went berserk and then died. Her husband was talking to her when she went berserk and she claimed that she was killing demons. Her hair is white just like Greg’s.
Once Walter gets the corpse’s scalp open, he examines the brain and finds a computer chip planted in the thalamus, the part of the brain that regulates sleep. He calls Peter, who finds the same type of incision on Ellen.
Broyles takes the chip to Massive Dynamic and has Nina’s people analyze the chip. She explains that it lets someone regulate a subject’s sleep patterns using a remote computer. Dr. Laxmeesh Nayak has perfected the chip and is using it in studies at his sleep clinic in Seattle. Peter and Olivia meet with Nayak, who admits that Greg and Ellen were both his patients. However, he warns that over 60 people were part of the study and still have chips in their heads.
At the clinic, they discover that someone has ransacked Nayak’s office, stealing his computer. Nayak gives the password to the remote server with the backup files to Olivia and has his assistant Zack Miller bring up the data. As Olivia asks for his business card, Nayak explains that the chip couldn’t possibly be used to harm anyone.
Peter suspects that someone is accessing the chips and mentally controlling the victims. They call Walter, who confirms that it’s possible. Peter sends him Nayak’s schematics but warns him not to experiment on student volunteers again. Walter promises not to, but then considers Kashner thoughtfully.
As Pete and Olivia discuss the case and review the files, they realize that Nayak has only been able to find 26 of his patients so far and get them back to the client for chip removal. Olivia sees a photo of Charlie and remembers how he died, and how she had to kill his doppelganger. Peter tries to reassure her and Olivia talks about how Charlie was the one who helped her during her first field assignment with the FBI.
Zack is in a basement surrounded by computer equipment, working with a man wired into a compute system. Zack brings up the list of Nayak's patients and brings up the file on one of them. The man hooked into the computer tells Zack to increase the output.
At a restaurant, Diana Lamia is cooking when she starts to see her co-workers as cannibals cooking human hands. She goes berserk and attacks them with a knife. In the basement, the wired man clutches his hands in response to Diana's actions.
Agent Kashner arrives to inform Walter he's got the luggage released and he's heading back to Seattle. Walter asks him to double-check the odor of a batch of chemicals. When Kashner sniffs it, he passes out.
As Nayak continues to remove the chips, Sam calls Olivia and asks if she got the business cards he instructed her to obtain from people wearing Red. He then tells her to lay them out and then circle one letter in each first and last name. Finally he tells her to write them down and then unscramble the letters to form a phrase. When she wonders what the phrase is, Sam explains that only she knows, but it's what she needs to hear. As she works, Broyles calls to tell her that someone with insider access wiped Nayak's back-up generator and the patient files. Olivia passes the information along to Dr. Nayak, who insists that his staff is trustworthy. Peter lets Olivia know there's been another incident and they go the restaurant to talk to Diana's father. She also died of exhaustion after going berserk. Nayak remembers Diana as one of his patients, and informs them that Zack hasn't reported to work.
Nayak returns to his clinic and finds a note on the door telling him to stop talking to the FBI or he'll get what Zack got.
Peter and Olivia go to Zack's apartment and find him dead, strung up in his closet.
Astrid discovers that Walter is experimenting on Kashner. Fortunately, Walter has hooked him up to an EKG net instead of inserting the chip. Walter then taps into the net using his neurostimulator. Things get hazy for Walter and at first he thinks he's suffering drug flashbacks. However, he soon realizes that it's something else.
Nayak tells Peter and Olivia about the note and they send it to the FBI for analysis. However, once they've left, Nayak calls someone and tells them that he's told the FBI about the note so the person threatening him has nothing to gain by killing him.
Walter calls Peter to tell his son that he's determined what the chips are being used for. The chips channel the dreams and subconscious of the patients back to the recipient, creating a highly addictive sensory rush for that person. The chips can also trigger a dreaming in a conscious person, leading to hallucinations and paranoia as they mistake the real world for the dream world and act out their nightmares.
Back at the hotel, Peter and Olivia review the files and Olivia realizes that the person they're dealing with may have a totally different personality when they're addicted then when they're sober. She checks the handwriting of the note and realizes that it matches the handwriting of the patient list written by Dr. Nayak.
Detective Green takes Nayak home, but as soon as the doctor is alone he goes to the basement and hooks himself up into his computer system. He brings up the computer file of a shuttle airplane captain and activates the man's chip. The pilot is preparing to lift off in a seaplane. As he begins the liftoff, he hallucinates that his co-pilot is a faceless demon and goes berserk. He aims the plane toward a nearby ocean liner and prepares to crash.
Olivia and Peter go to Nayak's house and find him in the basement. Peter is unable to shutdown the computer and they get word the plane is heading for the ocean liner. Olivia finally shoots the computer, severing the link and restoring the captain to normal. The feedback kills Nayak and Peter examines the settings. He speculates that Nayak had turned up the controls to maximum in the hopes that the feedback would kill him and free him from the addictive nightmare.
Later, Olivia goes to Charlie's grave and places flowers on it. She goes to her car and finally realizes what the seemingly random letters spell. She rewrites them to reveal the phrase "You're gonna be fine."
Peter is at home dreaming. He sees himself as a small child in his bed. As he's sleeping, men come in and abduct him. Peter wakes up to find Walter sitting nearby, watching over him. Walter asks what he remembers of his dream and when Peter tells him he can recall very little, Walter looks relieved. Share this article with your friends