The film begins with a title card describing Holmes and Watson as "ageless", as an explanation as to why the film is set in the 1940s rather than Holmes' era of 1881–1914, as the preceding 20th Century Fox films were. There is a nod to the classic Holmes, in a scene where Holmes and Watson are leaving 221b Baker Street, and Holmes picks up his deerstalker. Watson protests, and Holmes reluctantly puts on a fedora instead.
Holmes is called into the "Inner Council" of British Intelligence by Sir Evan Barham (Reginald Denny), to assist in stopping Nazi saboteurs operating in Britain, whose activities are announced in advance in radio broadcasts by "The Voice of Terror".
Gavin (Robert Barron), one of Holmes's operatives, is killed with a German dagger in his back. Before he dies, Gavin utters the word "Christopher." Later, Holmes and Watson go to the Limehouse district of London, where they meet with Gavin's wife Kitty (Evelyn Ankers).
Holmes tells the council that, through the use of an oscilloscope to carefully analyze and compare sound wave patterns from radio broadcasts of live vs. pre-recorded voices, he has determined that "The Voice of Terror" is actually recorded on phonograph records in England, but broadcast from Germany. Using a tip from Kitty, Holmes and Watson go to the old Christopher Docks, where they are followed by Sir Anthony Lloyd (Henry Daniell) of the council. The three men are captured by a group of Nazi spies led by a man named Meade (Thomas Gómez) however Sherlock, Watson & Lloyd are freed by some of the East End men as they attack the Nazis, although Meade manages to escape through a trap door to a waiting speedboat.
Kitty pretends to be a thief on the run and joins Meade. She finds out that Meade plans to go to Sir Evan's country estate that night. There Holmes and Sir Evan watch a German plane attempt to land, but gunshots fired by Sir Evan disrupt the Nazi rendezvous; all the while Meade hides in the dark.
After one of Holmes informants traces Meade and Kitty to the south coast of England, Holmes forces the council to go there with him. With the support of British troopers, Holmes captures Meade and a group of German soldiers stationed in an abandoned church.
There he reveals the true identity of "The Voice of Terror" as Sir Evan Barham, who happens to be an impostor. Holmes then reveals that in World War I, the real Barham was a prisoner in a German war camp and had an uncanny resemblance to a Heinrich Von Bock, a member of the German Secret Service; one day the real Barham was taken out and executed; the gentleman who called Holmes into the case was Von Bock himself who had been posing as Barham for 24 years; Holmes then adds that Barham had no immediate family, so his private life was well studied by Von Bock, who also studied at Oxford and had knowledge of the English language and manners. So, with a little help of plastic surgery, not to mention the resemblance to Barham in the first place, the deception was carried out thoroughly. Holmes also concludes that the real Sir Evan Barham carried a scar from childhood, the one Von Bock carried from plastic surgery was approximately 20 years old - the clue that gave away the fact that he was an impostor.
Holmes then informs the spies that the German invasion force has been destroyed. The angry Meade shoots and fatally wounds Kitty, but is killed himself as he attempts to escape. The Council stand around the murdered Kitty and swear that her heroic death will not be in vain.
The film ends with a direct quote from "His Last Bow":
Watson: It's a lovely morning, Holmes.
Holmes: There's an east wind coming, Watson.
Watson: I don't think so. Looks like another warm day.
Holmes: Good old Watson. The one fixed point in a changing age. There's an east wind coming all the same. Such a wind as never blew on England yet. It will be cold and bitter, Watson, and a good many of us may wither before its blast. But it's God's own wind none the less. And a greener, better, stronger land will lie in the sunshine when the storm is cleared.
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