The gang are out on a fishing expedition but have become lost in the fog. Their boat runs aground on Haunted Isle, the location of the Vasquez Castle, an old pirate fortress. On their way to the castle to find help, they find a threatening note warning them to leave. Inside the castle, they contemplate the portrait of Vasquez the pirate; Daphne falls through a trapdoor; and the rest of the gang flees in a panic when a cackling laugh breaks out. The rest of the gang tries to find Daphne, but Scooby and Shaggy become separated from Fred and Daphne and meet up with a talking skull. A panicked Shaggy idly asks for a calm-inducing ham sandwich, and the sandwich materializes out of mid-air. Fleeing again, Scooby and Shaggy find Daphne and Fred and Velma, and the full gang is then threatened by The Phantom, a billowing, sheet-wrapped figure. Fred, Shaggy and Scooby try to tackle the apparition, but they pass right through it; the Phantom then disappears through a wall. Even Velma thinks that they must have stumbled onto a genuine haunting. Daphne discovers a giant key engraved with the message "Second Passage of The Old Bell." They deduce that this must refer to a book, and they find The Old Bell in the castle library; the second passage in the book refers to "catacombs." Beneath the castle they find a room stocked with magician's props. The Phantom appears, spreading panic; for a moment it looks as though Shaggy is being sawn in half before it is revealed as a trick. Fred, Daphne and Scooby try fleeing on a magic carpet. When they all regroup after losing the Phantom, they resolve to catch the Phantom; to that end, they send Scooby (dressed up in a hat, trenchcoat and moustache) out to lure the Phantom into a trap. He brings the Phantom in but lands in the trap himself. Fortunately, he falls out of the trap, catching the Phantom, who is unmasked as Bluestone the Great, a magician-turned-crook wanted in six states. Bluestone was searching for the Vasquez treasure and using his magic tricks to frighten snoopers away.