Contains spoilers for this episode and earlier episodes.
Henry Knight comes to Baker Street asking Sherlock to investigate the enormous hound he remembers killing his father on Dartmoor. Recent footprints have revived a fear that years of therapy could not remove. Sherlock initially dismisses the story, then agrees to visit. He and John enter the nearby Baskerville military research facility using Mycroft's credentials, where Dr Frankland helps them avoid being exposed as unauthorised visitors.
A trip to the hollow leaves Henry terrified and Sherlock shaken by a creature he cannot explain. John looks for a rational answer while Sherlock becomes angry at the suggestion that his own senses are unreliable. The local innkeepers admit using a dog to attract tourists, but that does not account for what Sherlock believes he saw. Returning to the laboratory, Sherlock deliberately puts John through a frightening experiment to test his suspicion of a drug.
Henry's remembered words lead Sherlock to a chemical weapons project in Liberty, Indiana. Frankland continued its work and killed Henry's father after he discovered the experiments. Gas released in the hollow has repeatedly distorted Henry's memories and frightened the investigators. John shoots the real dog while the chemical makes it appear monstrous; Frankland flees into a minefield and dies. Afterwards, John confronts Sherlock about the laboratory ordeal. Sherlock's sugar theory was wrong: John had already encountered the gas through leaking pipes.