Claudia and Pete go to the local coffee bar to get coffee for an all-night audit. Pete suggests that she play at open mike but Claudia refuses. As she prepares to go back, she gets a call from Gibson Rice, who says that Doug Fargo told him to call her if something went wrong with their beta test. Fargo and another man, Jerry Hoffler, are strapped into virtual reality headbands and dying.
Pete, Myka, and Claudia go to Gibson’s house in Palo Alto. When Claudia tries to remove the headband, they shock her. Gibson explains that Fargo and Jerry are playing a virtual reality game. He plays them of Fargo’s promotional video for Fargames, a virtual reality video game with full sensory immersion. Claudia realizes that it didn’t work and Gibson admits that Fargo used a tea set to make it function. Jerry and Fargo both drank out of it, and the agents confirm that it’s an artifact.
In New York, Steve receives a call from FBI agent Sally Stukowski to meet her at the Hobbes Gallery. She’s surprised to discover that Steve brought Artie with him. Stukowski explains that the curator, Eric Johnson, took a dive out of a window. However, Johnson had everything to live for and there were no witnesses. He was the only one in the building and apparently committed suicide, but the coroner’s report indicates that he appears to have fallen from over a mile despite the fact he jumped from a second-story window. Artie spots a painting of a tree and finds a leaf on the floor. He tells Sally that it was suicide and gets Steve out. As they go, Artie explains that the painting is Stormy Night
by Van Gogh, and has been missing for years. Death has followed the building wherever it has been spotted, but Artie warns Steve that they can’t tell Sally anything and they’ll have to steal the painting.
At the warehouse, Leena identifies the tea set as belonging to Beatrix Potter. It stimulates the imagination center of the brain, and Fargo figured that it would stimulate the brain to handle the virtual reality. Myka has Leena send her the Potter first editions. Jerry and Fargo go into convulsions and Claudia says that they have to go into the reality. She rigs more of the headbands and gives Myka an in-game communicator while she and Pete go inside. They put on the headbands and drink the tea, while Gibson explains that Fargo programmed a sword & sorcery setting. Pete goes in first and makes sure that his controller works. Claudia goes in next and they find themselves in a landscape facing Fortress 13. Claudia discovers that she’s an elf, much to her disgust.
A computer simulation of Artie, General Arthur” arrives and tells them that they’re going on a quest. A hole opens beneath them, dropping them into a dining hall. General Arthur explains that there are many evil relics in the Fortress, and the Princess is trapped in the Black Tower. He asks if they’ll accept their dangerous quest and the program keeps shorting out until they agree to play along. General Arthur then creates a golden path and tells them that they must find the Tower key and save the Princess. Before departing, Arthur tells them that those who do the right thing will receive great rewards. Myka calls and warns that Jerry and Fargo are deteriorating rapidly. Pete confirms that he has a sword, while Claudia has a vial of purple goo. They leave on the path to save the princess.
Artie and Steve sneak back into the art gallery and Artie bypasses the security, shutting down the laser alarm with an eclipse device. They discover that Sally is waiting for them. She demands that they include her or she’ll activate the alarm.
Myka reads Potter’s first drafts and notes that they’re different from she remembered. She notices a cup with a photo of Jerry and a woman on it.
After wandering in circles, Pete and Claudia find a prisoner chained to a disco ball artifact. They realize they have to act the right way to win rewards, but Pete’s sword is useless. However, Claudia uses the purple goo, neutralizer fluid, to free the prisoner. The woman reveals that she is Leena of the Eagle People. She shows them the way to their destination and gives Claudia a feather as a boon to summon her for assistance. As the follow the path, a robed executioner secretly follows them.
The trail leads to a virtual version of the Warehouse’s Dark Vault. The key is on a pedestal and Claudia easily recovers it. However, the floor bubbles and a hand emerges. Pete uses his sword to pull the victim free: Fargo. In the real world, Fargo’s vitals stabilize. In the game, Fargo is surprised to see that his rescuers have their controllers. He tells them that the Executioner took his controller, just as the creature enters the room. It telekinetically grabs the controllers from Pete and Claudia and then shatters Pete’s sword, forcing them to run for it.
After escaping the executioners, Fargo explains that all of the strange stuff wasn’t supposed to happen. Myka calls and tells them that Fargo’s body is back to normal. She informs them that Potter’s original stories were dream journals of incredibly dark incidents, and suggests that the tea set brings the drinker’s fears to life. They figure that the Executioner is from Jerry’s subconscious, and conclude that he went to the Black Tower to finish the game and end the simulation.
Myka discovers that Gibson knows almost nothing about Jerry and shows him the photo. She goes through Jerry’s calls and finds the name Hannah.
After having Sally check outside for a (fake) noise, Artie has Steve hold a blank piece of memory paper and uses it to duplicate the painting. When Sally returns, she’s surprised to see they have an exact duplicate. As she approaches the real painting, Sally sneezes and a storm blasts out of the painting, shoving them toward the window. Artie manages to spray the painting with neutralizer fluid and then explains that a puff of air activates the painting. As they swap it out, a stray leaf falls on the eclipse device.
Hannah arrives when Myka calls her and the agent tries to explain what happened. The girl says that she broke up with Jerry after he refused to make a commitment to her. Jerry even bought her a ring and Hannah found it, but he never proposed to her.
Artie finishes the swap of paintings and the alarms cuts off. Sally grabs the painting and escapes before the room is locked down.
Pete, Claudia, and Fargo make their way through the umbilicus to the Black Tower and use the key to get in. They find the Princess: Fargo’s recreation of Claudia, with a high squeaky voice and a large... breastplate. They save the Princess but the game doesn’t end. They find Jerry cowering in a corner and the Executioner enters the room. It destroys the Princess and blasts Pete to the ground. As it closes in on Jerry, it pulls back its hood to reveal Hannah’s face. It takes Jerry away in a cloud of smoke and Pete goes after it, only to come face-to-face with a fire-breathing dragon.
In the real world, Jerry’s goes increasingly faster and the others start to overload. Myka calls Pete and explains that Jerry’s anxiety comes from his girlfriend. She tries to tell them what’s going on but the communication device goes bad. Pete admits that he was thinking of his fear of being cut off from the outside world. When they wonder whose fear the dragon is, Fargo explains that’s it part of the game. He says they need the Dagger of Josephine to defeat it, but then realizes that he didn’t program it into the game. They need a way to get to Jerry and Claudia uses the feather to summon Leena, who brings forth a griffin to fly them out.
The police arrest Artie and Steve. Artie figures that Sally plans to sell the painting, and warns Steve that they can’t identify themselves. Sally returns and claims that Steve and Artie are working with her on an anti-terrorism case and gets them released.
Evil Hannah fastens Jerry into a guillotine. He begs for forgiveness, unaware that the others are hiding nearby. Fargo isn’t sure if death in the virtual world will result in their deaths in the real world. Meanwhile, Claudia appears distracted and admits she’s trying not to think of her worst fear. Dr. Michener from the psychiatric hospital appears and tells Claudia that she’s in a delusion and her brother is still dead. She finds herself strapped to a table while an attendant puts Fargo and Pete in straitjackets. Michener prepares to administer electroshock therapy
As her teammates go into convulsions, Myka tells Gibson not to panic and looks at one of the headbands.
As the doctor prepares to administer shock therapy, a hooded warrior appears and shoots him and the attendant. Claudia breaks free and uses the electrodes to destroy the doctor. Myka reveals that she’s the hooded warrior and Claudia admits that she had a catharsis. They realize that they have to face their own fears and defeat them. Myka and Claudia go to get Jerry to face his fear while Pete and Fargo distract Evil Hannah.
Steve and Artie thank Sally for her help and walk away, but Peter still thinks something is wrong. Meanwhile, Sally turns and glances at her partner, Marcus Diamond, who has watched the entire exchange.
Pete and Fargo attract Evil Hannah’s attention while Myka and Claudia free Jerry. He doesn’t feel that he’s worthy of the real Hannah. Fargo finally summons a magic wand but Evil Hannah easily destroys it and Pete stabs her. She’s immune and Pete fights hand-to-hand. Meanwhile, Myka tells Jerry that the demon is his fears of the proposal and he has to look her in the eyes and tell her how he feels. Jerry steps forward and puts a virtual ring on her finger, and she transforms back to normal before disappearing. Everyone appears back in the dining hall and Arthur offers them something to eat... and they find themselves in the real world as the game ends.
Later, Claudia summons the courage to play at the coffee bar.
Fargo leaves for Eureka.
Jerry proposes to Hannah for real.
Pete and Myka put the tea set away, link arms, and skip away.
Claudia finishes her song and the audience applauds.
Sally goes to see her wheelchair-bound superior. He tells her that now they wait.
Deep in Warehouse 13, first one and then hundreds of mechanical bugs swarm out of the Van Gogh painting and invade the warehouse.