Olivia returns to the bowling alley, with bowling shoes in hand -- her memory has been restored, and says she no longer needs Sam's help. Sam instantly asks, "Who died?" After chatting, Sam tasks Olivia with collecting business cards from every person she meets wearing red.
In Seattle, a businessman -- Greg Leiter -- rushes into his office with a briefcase. While walking past all his co-workers, their faces begin to take the shapes of strange creatures. Greg enters a conference room where his boss is waiting, but his boss has taken the form of a demon with horns. He begins to frantically bash his boss' face in with his briefcase, then he suddenly stops, and his eyes begin to race back and forth uncontrollably!!!
The Fringe Team arrives at Washington General Hospital where Greg has been staying since the incident occurred. He has been unresponsive for 16 hours and has just now been awaken by one of the doctors. Olivia questions Greg who cannot remember attacking his boss. He does, however, remember that the office was infiltrated with creatures and that Carl appeared to be a demon with horns. He knows it sounds crazy...like he was dreaming, but that's all he can remember. Suddenly, he begins to shake uncontrollably, and his hair turns snow white before he dies.
Walter examines Carl's body at the medical examiner's lab. Walter surmises that his body was highly dehydrated and that he died of acute exhaustion. Walter asks for the body to be taken back to his lab in Boston. Agent Kashner is sent to go back with him to escort the body to Walter's lab.
Olivia and Peter interview Greg's wife. Peter discovers sleep books and asks if Greg had had any sleep issues. She informs them that he used to sleepwalk often, but he was treated for it and hadn't had an episode in six months. Olivia asks for a name of the sleep doctor and to see his sleep journal.
Back at the lab, Walter finds nine surgical stitches on the back of Greg's neck... a mysterious location for an incision.
Peter has reviewed Greg's sleep journal and has discovered that it was also a dream diary. He had nightmares about demons once a week but a couple of months ago they suddenly stopped. Olivia gets a phone call: another incident has occurred.
Olivia and Peter arrive on the scene. A woman drove her car into a man on a bike. The bicyclist died on impact. The woman died as well but not from the crash! She had called her husband on the way home saying she saw a monster before the phone call abruptly ended.
Walter has enlisted Agent Kashner's help in opening up Greg's brain. He discovers a computer chip embedded in the thalamus, which regulates sleep. Walter calls Peter who also finds the same stitches on the back of the driver's neck.
Broyles visits Nina at Massive Dynamic to find out more about the computer chip. The computer chip has a transmitter to connect the brain to a remote computer. It monitors sleep patterns and when necessary activates the thalamus for a deeper sleep. A researcher in Seattle, Dr. Laxmeesh Nayak has worked on several prototypes just like it.
Olivia and Peter arrive at Dr. Nayak's home. He becomes alarmed when he discovers that patients in his clinical trial have committed murder before suddenly dying themselves. He reveals that 82 people are equipped with the biochip.
When they arrive at Dr. Nayak's office, it has been ransacked. The main computer server with the patient files has been stolen. He tells his assistant Zach to call the nurses to get the names of all the patients, but the nurses are only able to come up with a portion ofthe names. Peter looks at a chart for information on the biochip. The biochip plugs into the thalamus. The thalamus not only regulates sleep but also works as a relay tower to the cerebral cortex, which controls motor function. He believes someone was working on conquering mind control.
In a dark room, a mysterious figure with a wired cap stares at two computer screens. A woman's face appears in the screen just before the words "Accessing Bio-Chip" flash across the screen.
At a restaurant, Diane (the woman whose picture flashed on the computer screen) waits on the cook to finish preparing food to serve to her table. From her viewpoint, the meat turns into bloody hands. She abruptly grabs a large butcher knife...
Sam Weiss calls Olivia to see if she got the business cards. He tells her to circle one letter in each name both first and last and to write them all on a piece of paper. Then, she should jumble the letters until she finds the phrase. Broyles calls immediately after to tell her that the data was wiped from the computer. Whoever wiped the files must have had a password and be employed at the clinic.
Olivia and Peter arrive at the restaurant and interview a witness. One man reveals that Diane went crazy and told everyone they were cannibals. He wrestled the knife away from her before her eyes began to rapidly move back and forth before she died. Dr. Nayak arrives and knew that Diane suffered from night terrors. Peter responds that they must make a public announcement to reach all of his patients. Dr. Nayak finally informs them that his lab assistant Zach skipped work and hasn't been answering his phone.
No one answers at Zach's apartment, so Olivia and Peter bust in. They discover his dead body in an armoire. Meanwhile, Dr. Nayak receives a note saying "Stop talking to the Feds or wind up like Zach."
At the lab, Walter has drugged Agent Kashner so that he can experiment on him to test Peter's theory on mind control. During the test, he realizes that the chip is causing dreams to siphon off before they can reach consciousness. Having no dreams causes the brain to be unable to recharge leading to death by exhaustion. Also the chip can make it hard to distinguish reality from dreams causing paranoia and hallucinations. Whoever is responsible has been stealing dreams in order to receive the rush one gets from the most pleasant dream multiplied tenfold. He calls Olivia and Peter to inform them that they are dealing with an addict.
At Olivia's hotel, they examine the handwritings from the threatening note Dr. Nayak received and Dr. Nayak's handwritten list of patient names. They are the same.
Dr. Nayak returns home and plays his voicemail. It is a voicemail left by himself telling him to stop. He simply erases the message and goes into a backroom and places the wired cap on his head...he is the one who has been stealing dreams!! On the computer, a picture of a pilot appears. Meanwhile, the same pilot pictured is flying a seaplane. He begins to twitch and his eyes open widely. His co- pilot's facial features momentarily disappear. He begins to aim the plane towards a cruise liner. His co-pilot tries to stop him, but he knocks him out. At Dr. Nayak's home, the Fringe team has arrived.
Olivia begins to shoot Dr. Nayak's computer screens as the pilot awakens in the nick of time to save the plane from crashing into the cruise liner. Dr. Nayak dies instantly.
Olivia visits the grave of Charlie Francis. She returns to her car and removes her notebook with the jumbled letters from the business cards. She descrambles them to read "You're gonna be fine" -- the very phrase Charlie had said to her when they first met.