After the newly reformed TARDIS evades a missile fired at it from the far side of the moon, the Doctor, Jamie and Zoe arrive in late twentieth-century London. However the TARDIS's visual stabiliser has become damaged, rendering it invisible. In order to have it repaired, they set out to find Professor Travers and ask for his assistance. When they arrive, they find that he has left for America, leaving his home in the care of Isobel Watkins and her scientist uncle, Professor Watkins. She explains that her uncle has disappeared, after he worked on an invention for International Electromatics. The Doctor and Jamie go to IE's head office in London to investigate.
When the computerised receptionist won't let them past, they seek out another point of entry; this leads them to being gassed and taken to see IE's Managing Director, Tobias Vaughn. He apologises for the rough treatment the companions have endured, and explains that Professor Watkins was engrossed in a delicate stage of his work and agreed to remain on site—a statement which has piqued the Doctor's suspicions. After they leave, Vaughn reveals an alien machine, by opening a hidden panel in the wall, which tells him that the Doctor and Jamie have been recognised from Planet 14 (see Notes, below), and are a threat to their plans.
The Doctor and Jamie are abducted by two men, Benton and Tracy, and taken to a military transport aircraft, housing a complete operations room, where they are met by the (now) Brigadier Lethbridge-Stewart. He explains about UNIT, and the taskforce's investigation of IE.
Concerned about their failure to return, Zoe and Isobel leave for IE in search for them. They also encounter the receptionist, and are similarly frustrated when Zoe's inquiries about the Doctor and Jamie are all but ignored. Instead of seeking another method of entry like Jamie and the Doctor, Zoe verbally inputs an unsolvable ALGOL equation that overloads and destroys the receptionist, which leads to their capture. Isobel is used to make her uncle, who is being held captive, co-operate.
The Doctor and Jamie return to Travers' house, to find a note from Zoe and Isobel, explaining their going to search for them. They return to IE, and find several packing cases being loaded onto a train—one of which has an item of Zoe's clothing showing. However, they are again captured by the security chief Packer (who captured them the first time around), and again taken to Vaughn, where the Doctor accuses him of kidnapping Zoe and Isobel (a claim he flatly denies). Vaughn invites the two companions to come to the company's country compound, where the train will be arriving; it is here where they meet Professor Watkins, who has been warned to not mention Zoe and Isobel's whereabouts. He shows the Doctor his cerebration mentor, a teaching device that is capable of inducing emotional changes.
The Doctor queries Vaughn of the deep space communicator he noticed when he came into the compound; in return, Vaughn demands that the Doctor explain about the failed visual stabiliser, even threatening to hand Zoe and Isobel over to Packer if he doesn't co-operate.
The Doctor and Jamie escape onto a railway siding. Whilst hiding in the crates, Jamie has a near encounter with an automated cocoon. They emerge from the crates, and overhear guards being ordered to take Zoe and Isobel to the tenth floor.
Vaughn confides in Packer that he intends to use the cerebration mentor to control the Cybermen once they have invaded Earth; he also intends to use the TARDIS as a "getaway car", should he fail.
Vaughn broadcasts over the intercom system to the Doctor that he has ten minutes to surrender or Zoe and Isobel will be harmed. The Doctor uses a radio transceiver (given to him by the Brigadier) to order in assistance from UNIT, who — with the use of a helicopter — assist in rescuing Zoe and Isobel from the room they are locked in. Realising how dangerous UNIT are to his plans, Vaughn exercises hypnotic control over Major General Rutlidge, and orders him to cease UNIT's investigations.
The Doctor examines photographs of UFOs over the IE factory, and reasons that those ships are bringing cocoons to Earth. He, along with Jamie, sneak into the London IE warehouse, where they witness the emergence of a Cyberman from its cocoon. They go and warn the Brigadier that a Cyberman army are invading Earth, and that they are hidden somewhere on Earth. (The Doctor later states that they are hidden in the sewers.) However, Rutlidge has ordered the Brigadier to cease all investigations against IE. Lethbridge-Stewart intends to gain authority from Geneva, but requires proof to back his reasoning. Isobel offers her expertise as a photographer, but the Brigadier refuses.
Vaughn tests Watkins' device on an awakened Cyberman; however, the alien is driven mad by the machine, and escapes into the sewers. Vaughn reveals that in an hour's time, the Earth will come under the control of the Cybermen through a micro-electronic circuit built into every IE device; the Doctor discovers this same circuit when he opens up an IE radio, and sets about making a device to block the telepathic signal.
Meanwhile, Isobel, Zoe and Jamie have ventured into the sewers to obtain proof of the Cybermen's presence on Earth, narrowly escaping them in the process. The photos, however, prove to be worthless as they look too much like fakes.
Watkins perfects his machine and delivers it to Vaughn, and discovers that the Managing Director has been partially cybernised. UNIT manage to free Watkins from IE, during which time the Doctor creates a neurister, which neutralises the Cybermens' hypnotic signals. The Brigadier orders all the troops to have one of these taped to the back of each one's neck. At dawn, the signal is broadcast, causing the collapse of the human race; leaving the Cybermen able to take over London.
UNIT plan to use a Russian rocket to destroy the source of Vaughn's signal, while using UK missiles to destroy the incoming Cyberfleet. Captain Turner is sent to Russia to organise the rocket, while the Brigadier goes to the Henlow Downs missile site. The Doctor stays back to try and dissuade Vaughn one last time. The missiles are successfully launched with help from Zoe, and the Cybermen blame Vaughn for the setback in their plans, announcing that they will use a megatron bomb to destroy life on Earth. Furious, he uses the cerebration mentor to destroy the machine in his office.
The Doctor persuades Vaughn to now aid humanity instead of try to defeat it, and they take a helicopter to the factory, where they used Walkins' machine to battle the massed army of Cybermen; UNIT forces arrive later to assist. Vaughn is killed in the skirmish, but the homing signal is successfully shut down. The megatron bomb is destroyed by a missile, while the rocket destroys the last Cyberman ship, consequently stopping the hypnotic signal.
With the crisis now over, and the visual stabiliser circuits now repaired, the Doctor, Zoe and Jamie leave in the TARDIS.