When good-hearted Louie Dumbrowsky returns to his soda parlor in the Bowery after a vacation, regular Slip Mahoney and dizzy parlor cashier Cynthia welcome him. Louie then stumbles upon his pals Sach and Whitey, who are holding a séance in the backroom. Furious about the spiritual shenanigans, Louie lectures all the Bowery Boys--Slip, Sach, Whitey, Chuck and Butch--and kicks Whitey and his equipment out. Later that evening, Sach and Whitey, still faithful to the idea of contacting spirits, attend an exclusive séance with Margo the medium. While the audience gives its undivided attention to Margo, a three-hundred-year-old pilgrim ghost named Edgar appears to the film audience, warning them that real ghosts are only sent to Earth for important matters, like revealing Margo' s quackery. On Margo's stage, a ghost appears but a press photographer shoots a flash picture, interrupting the séance and causing the audience to disband. Meanwhile, at the Mahoney home, Slip discovers that his mother's friend and neighbor, Mrs. Parelli, is desperate to pay a medium named Madame Zola $100 to make Mrs. Parelli's deceased son Frankie appear before her. Slip, determined to reveal the deception, convinces Louie to hold a séance and bring back the ghost of Louie's wealthy Uncle Jake. During the séance one of the boys appears in disguise as Uncle Jake and borrows $100. Later, after Slip has given the $100 to Mrs. Parelli, the inconsolable mother visits Zola, who calls up the ghost of her son. However, the boys break in and expose the hoax. While being interrogated by Slip, Zola reveals that she works for Margo, and Slip then forces her to set up an appointment with Margo for Louie to contact Uncle Jake. Back at the soda parlor Slip gives Louie the $100, telling him Uncle Jake returned the loan and requested that Louie go to see Margo. Later at Margo's, Louie reluctantly enters alone to meet with the medium. As the rest of the boys look for another entrance, Edgar visits Sach and mysteriously opens a locked door for him. Sach soon discovers that only he can see and hear Edgar, when the boys return and call Sach insane because he is talking out loud to no one. While the boys case the house for evidence of Margo's hoax, Edgar leads Sach directly to the trick room, filled with costumes, accessories and a record player to create the ghostly presences. In the séance room, Margo flips a hidden switch to start the record player but when the ghost voice on the album skips, one of Margo's henchmen is sent to check the room. Sach escapes with the help of Edgar's special trick: Edgar draws a chalk door on a wall and magically opens a real door into the next room. After finding the boys in the next room, Sach leads them into the trick room, where Margo's henchmen capture all but Sach. Once outside Sach and Edgar go in search of a phone and call Cynthia for reinforcements. Meanwhile the henchmen drop the rest of the boys into a basement room that is quickly filling with water. In the séance room Margo receives hypnotists Professor Krantz and Dr. Siegfried and the professionals explain that hypnosis is a much more secure method of manipulating her audience than the tricks she employs. Soon after Sach and Edgar return and, with chalk in hand, Edgar opens a trap door in the basement room and frees the boys. The boys immediately enter the séance room, where Krantz hypnotizes them and Margo's henchmen carry them into the storage room. As Krantz explains that he can only hypnotize those with normal intelligence, Sach wakes up from the spell but keeps still until the Krantz and his cohorts leave. Meanwhile Cynthia and ineffectual private detective Jack Eagen, having just arrived, join Louie and discover Sach and the boys. Using an old witches' chant Edgar has shared with him, Sach releases all but Slip from the spell. After Sach slaps stubborn Slip back to reality, the henchmen return to dispose of the boys but they mount a surprise attack and triumph. Later, at the soda parlor, when Edgar appears to Sach, the boys once again think Sach has gone mad. Edgar then turns to the audience and asks if they believe in ghosts.