As the U.S. fleet prepares to navigate the waters of the Panama Canal, Panama City becomes rife with spies. A new group of suspects appears with the arrival of a sea plane bound for Balboa. Among the suspects are novelist Clivedon Compton, matronly school teacher Miss Jennie Finch, sinister scientist Dr. Rudolph Grosser, café proprietor Manolo, singer Kathi Lenesch, cigarette salesman Achmed Halide, government engineer Richard Cabot and government agent Godley. Upon landing, Godley goes to a hat shop owned by Fu Yuen, alias Charlie Chan, to enlist the sleuth's help in unmasking the deadly spy known only as Reiner. Just as Godley is about to divulge Reiner's real identity, he falls to the ground, dead, leaving Chan to expose Reiner before the spy can sabotage the canal. As the other suspects are murdered, one by one, first Compton, then Manolo, Chan learns that the canal's Miraflores locks are to be blown up at ten that night. Chan then sequesters the suspects at the plant, forcing Miss Finch to expose herself as Reiner in order to escape death. With Reiner under arrest, the fleet sails safely through the locks to protect democracy.