On the way to show Brighton to Leela, the TARDIS lands on the island of Fang Rock off the south coast of England in the early years of the 20th century. Noticing that the lighthouse isn't functioning properly, the Fourth Doctor decides to investigate, as well as to ask for directions, as the TARDIS seems to have got 'lost in the fog'. Upon arrival at the lighthouse, and after introducing themselves, the Doctor discovers the dead body of one of the keepers, Ben. The other two keepers, old superstitious Reuben and the keen young Vince Hawkins, report that a light fell from the sky near the island. They also explain the electricity flow to the lamp on the lighthouse has become erratic and the Doctor deduces something is feeding on the flow. Reuben does not help matters with his constant references to the mythical Beast of Fang Rock, which reputedly once terrorised the lighthouse. As the Doctor and Leela explore, something moves Ben’s body out of the lighthouse and onto the island, and they witness a curious electric crackling which seems to have killed fish nearby.
The loss of the electric light due to the unexplained draining of power from the generators causes a luxury yacht to crash on to Fang Rock. The four survivors are brought to the lighthouse: the bosun Harker; an MP named Colonel James Skinsale; the owner, Lord Palmerdale; and his highly strung secretary Adelaide Lessage. Over time it emerges Palmerdale has bought government secrets from Skinsale and was desperate to reach the stock exchange to make a killing – hence the reason the ship was travelling at such a pace.
Harker and the Doctor retrieve Ben’s body and the Time Lord deduces it has been used as an anatomy lesson for an alien life form. He determines that their best protection is to secure the lighthouse to keep the creature out. Reuben then disappears for a time and then reappears a changed man, which the others put down to shock. But the pattern of death now speeds up. Palmerdale is killed in the lamp room by a glowing alien presence on the outside of the lighthouse, and then Harker is killed when Reuben corners him in the boiler room. From the alien light emanating from Reuben it is clear he has become possessed or transformed by the alien creature. The Doctor finds Harker’s body and then Reuben’s own – the latter cold for some time – which means the creature in Reuben’s form, has chameleonic properties.
The creature now stalks down and kills the others in the lighthouse. Vince dies first, then Adelaide. With its presence now revealed, the alien among them sheds its disguise: it is a Rutan, a green blob like amphibious life form (with chameleonic 'metamorphosis' capabilities), whose scout ship crash landed in the sea and is trying to summon its mother ship. The ship is part of the Rutan battle fleet, engaged in a seemingly interminable war with the Sontarans. The Lighthouse and Victorian technology provide little ammunition in dealing with the Rutans, however the Doctor modifies a weapon (an 'early chamerly') and uses this to destroy the Rutan (the life forms evolving on icy Ruta 3 are susceptible to high temperatures).The Doctor had previously obtained diamonds from Palmerdale's body belt (Skinsale, stopping to collect the discarded diamonds, was fatally electrocuted by the Rutan) – and then the Doctor uses the diamonds (as 'carbon oscillators') as a focus for the light(the electric lighthouse beam), and convert it into a high-energy laser by which the Doctor destroys the Rutan mother ship. The blinding flash even turns Leela’s eyes from brown to blue. The Doctor quotes Wilfrid Gibson's poem Flannan Isle as they take their leave.