Horrific images of a body under attack by a snarling, indistinguishable beast flash in the night as a small boy crashes through a black and haunting moor. He emerges into daylight, terrified, where a woman, out walking her dog, offers help.
Meanwhile, Sherlock needs a new case to ward off his nicotine cravings and feed his hyper-intelligence, and it's that very boy, now a grown man, who arrives in desperate need of help and provides Sherlock's case. As a child, Henry Knight witnessed his father's mauling by a "gigantic hound" in the Devil's Hollow area of Dartmoor. His father's body was never found but the hound became local legend, fodder for both tourists and conspiracy theorists who suspect nearby Baskerville, a top-secret military research complex specializing in chemical and biological weaponsÉand, it's speculated, the weaponized genetic mutation of animals. Knight's therapist had encouraged a healing return to the scene of his childhood trauma. But the experience backfired: standing at the very spot, Knight found beneath his feet the footprints of a gigantic hound.
The hunt is on as Sherlock and John penetrate the high-security labs of Baskerville in search of a demonic hound that may be no more than a delusion. Somehow, in Baskerville's secret basement labs of caged animals and among the ancient piles of stones scattering the moor, science and the supernatural must intersect. But what powers do observation and deduction have in the face of a hellish hound?
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Warning: Contains significant plot spoilers
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In the dark fog of the moors, a boy witnesses a barbaric attack on his father by a demonic creature. His father's body was never found. Twenty years later, Henry Knight returned to the scene of his childhood trauma, encouraged by his therapist to confront his fear, only to find beneath his feet giant footprints. He looks to Sherlock for help and the detective is intrigued by Knight's description of the beast as "a gigantic hound." The hunt is on as Sherlock and Watson immediately depart for the Dewer's Hollow section of Dartmoor, near Baskerville. A notorious top-secret military research complex specializing in chemical and biological weapons, Baskerville is rumored to be developing weaponized genetic mutations of animals. There, Knight's hound is a local legend, a tourist attraction, and fodder for conspiracy theories.
Impersonating his brother Mycroft to gain entry to Baskerville's high security labs, Sherlock meets the evasive scientist Dr. Stapleton and the oddly helpful Dr. Frankland, who inexplicably vouches for Sherlock when Mycroft's credentials are flagged and cause a security alert. The duo leaves in a hurry.
At the village pub, a vegan establishment, John notices an invoice for a large order of meat, which raises his suspicions. So too does a cocky tour guide, who produces a plaster cast of the hound's foot and tells of a friend who saw enormous, horrifying animals in a MOD secret lab. Knight tells Sherlock and John about words that keep returning to him, "Liberty" and "In." That night, they venture to Dartmoor. Separated from the others, John observes a light flashing, signaling Morse code. He notes the letters, UMQRA, and follows a sound and a sudden movement. Meanwhile, Sherlock and Knight discuss Dr. Frankland as they proceed to the hollow past signs labeled "Danger." Knight's father, an espouser of conspiracy theories about the Baskerville labs, had been a friend of Frankland's despite their disagreement about the lab's research. John runs toward a howling sound and Sherlock observes a giant footprint in the earth. Then the howling transforms to growling and Sherlock freezes in terror; he doesn't know what he's seen.
As Sherlock tries to recover from the abject terror he experienced at the hollow, John continues to investigate, learning that the lights weren't code but simply the headlights of a parked car at a popular romantic spot. The pubowners confess that the meat was for a large dog they had acquired to let run on the moor to boost the tourist trade. Sherlock, still unsatisfied, appeals to Mycroft to give him access to Baskerville again. There, John searches an old side lab, with nothing but a pipe leaking steam, then reenters the main lab. Suddenly blinding lights go on, a deafening sound assaults him, and he is locked into the lab, unable to get out. Then the lights go out and in the dark he hears animal footsteps and growling. Gripped by terror, he locks himself into an empty animal cage and calls Sherlock, begging to be rescued. Prompted by Sherlock, he reveals that he has seen the hound.
When Sherlock rescues John, he explains that they've all been drugged, and John only saw what he was suggested to have seen. Sherlock constructs his "mind palace," a mental mapping technique and, assembling fragments of memory, observation, and secret files he hacks into, he connects Knight's choice of the words "hound" "Liberty" and "In" with Project H.O.U.N.D., a CIA chemical weapons experiment conducted in Liberty, Indiana in 1986. The experiment was shuttered when the aerosol chemical, intended to disorient the enemy through fear, drove people insane.
Knight's therapist calls, desperate: Knight has disappeared with a gun, prepared to kill himself. Sherlock and John race to the moor and arrive at the hollow just in time, as Henry prepares to pull the trigger to the gun in his mouth. They explain that someone had been drugging him to try to keep him quiet about what he'd seen and confuse his true memories of a man attacking his father, not a hound. A man in a gas mask, wearing a shirt with the logo "Hound Liberty In" on it. The drug would not only confuse him as his true memories emerged, but discredit him as well. And the hound — just an ordinary dog running through the moors, leaving ordinary footprints, grown terrifying with the influence of the drug and the power of suggestion. But as Sherlock explains this, the dog appears, snarling, stalking. Then a man in a gas mask approaches — inside the mask Sherlock sees the grinning face of Moriarty. He rips off the mask and reveals Frankland. He yells to John that the drug is in the moor's fog, an aerosol dispersant triggered by pressure pads in the earth to create a chemical minefield. But they are under its influence and they shoot the dog, only to find that it is ordinary. Knight now knows that Frankland killed his father, who had found out he was conducting dangerous experiments, and that Frankland had been driving him insane for twenty years. Frankland flees but runs into a live mine field, triggering an explosion and blowing himself to bits.
John learns that Sherlock had locked him in the lab as an experiment to test his theory of the chemical agent. He knew how it affected a superior mind and wanted to test it on an ordinary one.
Meanwhile, Mycroft supervises the release of Moriarty, whose prison cell walls are covered with the obsessive inscriptions of the word, "Sherlock."