In Winter River, Connecticut, Barbara and Adam Maitland decide to spend their vacation decorating their idyllic country home. As they are driving home from a trip to town, Barbara swerves to avoid a dog, and the car plunges into the river. After returning home, she and Adam notice they now lack reflections.
When Adam attempts to leave the house, he ends up in a strange and otherworldly desert-like landscape populated by enormous "sandworms." The encounter lasts only a few seconds for him, but after Barbara rescues him, she says he was gone for two hours. They then find a Handbook for the Recently Deceased, which leads them to realize they drowned in the river and have become ghosts.
The house is sold, and the new owners, the Deetz family, arrive from New York City. Charles Deetz is a former real estate developer; his second wife, Delia, is a sculptor and conceptual artist; and his teenage goth daughter, Lydia, from his first marriage, is an aspiring photographer. Under the guidance of interior designer Otho, the family transforms the house into a new-wave work of postmodern art.
Consulting the Handbook, the Maitlands travel to an otherworldly waiting room populated by other distressed souls, where they discover the afterlife is structured according to a complex bureaucracy involving vouchers and caseworkers. The Maitlands' caseworker, Juno, tells them they must remain in the house for the next 125 years on pain of a dire fate. If they want the Deetzes out of the house, it is up to the Maitlands to scare them away.
Adam and Barbara are invisible to Charles and Delia, but Lydia is able to see them; she attributes her paranormal intuition to her "strange and unusual" nature. Against Juno's advice, the Maitlands contact the miscreant Betelgeuse, Juno's former assistant and a now-freelance "bio-exorcist", to scare the Deetzes away.
Betelgeuse quickly offends the Maitlands with his crude and morbid demeanor. They reconsider hiring him, but they are too late to stop him from wreaking havoc on the Deetzes. The small town's charm and the supernatural events inspire Charles to pitch his boss, Maxie Dean, on transforming the town into a tourist hot spot, but Maxie wants proof of the ghosts. Using the Handbook for the Recently Deceased, Otho conducts what he thinks is a séance and summons Adam and Barbara, using their wedding clothes, but they begin to age and decay, as Otho unwittingly performed an exorcism instead.
Horrified, Lydia summons Betelgeuse for help, but he will only help her if she marries him; marrying a human would enable Betelgeuse to freely cause chaos in the mortal world. Betelgeuse saves the Maitlands, disposes of Maxie, Maxie's wife, and Otho, and prepares a wedding before a ghastly minister. The Maitlands intervene before the ceremony is completed, and Barbara rides a sandworm through the house, which devours Betelgeuse.
The Deetzes and Maitlands agree to live in harmony within the house. Barbara and Adam form a stronger bond with Lydia, and she persuades them to occasionally unleash their ghostly powers, including spirit possession. Betelgeuse is stuck in the afterlife waiting room. He steals a number ticket from a witch doctor, who shrinks his head in return.
