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The film opens with two primary characters: a university academic who also engages in paranormal investigation work, Margaret Matheson (Sigourney Weaver); and her assistant in both areas, Tom Buckley (Cillian Murphy), who is also a talented physics academic. The audience is provided with an insight into the world of the opening section's primary characters while concurrently observing the public reemergence of a psychic, Simon Silver (Robert De Niro).
The ending of the film's opening section is signified by the sudden death of Matheson from a chronic vascular condition at the same time that one of Silver's reintroductory performances takes place; an incident that is particularly significant due to the death of a former nemesis of Silver, a skeptic who investigated the psychic's work, under similar circumstances. Matheson had also previously been involved with investigating Silver and appears on a televised panel in anticipation of Silver's return. Prior to her death, Matheson refuses to cooperate with Buckley's insistent call to undertake another investigation of Silver, warning Buckley against such an undertaking due to her previous experience with the psychic.
However, following Matheson's death, the assistant becomes increasingly obsessed with investigating Silver for the purpose of exposing the popular psychic as a fraud. During Buckley's efforts to reveal Silver's large-scale trickery, a series of inexplicable events occur—electronic devices explode, dead birds appear, and Buckley's laboratory is vandalized. Buckley's paranoia intensifies, as he believes Silver is behind these incidents. Buckley's calm and rational disposition eventually degenerates into an obsessiveness that resembles the late Matheson's intense disregard for paranormal claims. As part of the introduction to the climactic section of the film, Silver agrees to participate in an investigation proposed by an academic from the same university that Matheson was employed by, and Buckley joins the observation team for the tests.
In the final moments of the film, Buckley's assistants manage to reveal the manner in which Silver defrauds the public through a close analysis of the test footage accumulated by Buckley from the university's investigation. At the same time, Buckley exposes Silver at one of the psychic's public performances, and Silver is left dumbfounded. Buckley then reveals to the viewer that he actually possesses paranormal abilities and has been responsible for the inexplicable incidents that have occurred during his investigation of Silver. In a letter to his late mentor, Buckley explains a realization in which he arrives at an understanding that his decision to work with Matheson, despite the possibility of loftier career opportunities as a physicist, was the result of an unconscious attempt to seek out others like himself; the revelation clarifies that Buckley's choices were made in spite of his conscious denial of the existence of paranormal activity (such denial is touched on earlier in the film, whereby the character reveals that his mother was delayed from seeking critical medical treatment due to advice from a fraud psychic).