Meanwhile, as the clock strikes midnight on the fateful anniversary of that disaster, eerie phenomena begin to plague the town as a dense fog bank creeps toward the bay. Seeming to appear from nowhere and emitting a ghostly glow, the fog surrounds a small trawler filled with drunken fishermen, who glimpse the vague outline of a decrepit sailing vessel before being brutally killed by shadowy figures brandishing hooks and swords.

That morning, news of their disappearance is relayed to the town by Stevie Wayne (Adrienne Barbeau), owner and operator of the local radio station. The news reaches the wife of one of the fishermen, city councilwoman Kathy Williams (Janet Leigh) and local boy Nick Castle (Tom Atkins), who takes a trip out to the abandoned boat to investigate, accompanied by teenage drifter Elizabeth Solley (Jamie Lee Curtis). As the day progresses, a grim series of events paints a decidedly unpleasant picture of Antonio Bay's founders, and foreshadows the ghostly retribution that awaits the town's present-day residents. When Mrs. Williams visits local priest Fr. Malone (Hal Holbrook) about a benediction for that night's centennial ceremony, he relates a ghastly tale discovered in his grandfather's journal, which details the town fathers' decision to murder a group of lepers who had planned to build a commune outside of Antonio Bay. Just as the night's proceedings are haunted by the horrors of the past, the ghosts of the murdered dead have returned to seek symbolic revenge by claiming the lives of six townspeople, arriving amid the ominous fog bank which has completely engulfed Antonio Bay. Carpenter reportedly shot and inserted additional gory scenes after the original 'PG' cut failed to impress preview audiences.