Teenagers Sherlock Holmes (Nicholas Rowe) and John Watson (Alan Cox) meet and become good friends as students at London's prestigious Brompton Academy. Watson is introduced to Holmes' mentor, Rupert T. Waxflatter (Nigel Stock), a retired schoolmaster and inventor. Waxflatter's niece Elizabeth (Sophie Ward) is also Holmes' close friend and love interest and Holmes competes for her affections with fellow student Dudley (Earl Rhodes), though she shows a marked preference for Holmes.Meanwhile, a hooded figure uses a blowpipe to shoot Bentley Bobster and Reverend Duncan Nesbitt with hallucinogenic thorns, the effects of which lead to their deaths; Bobster leaps out a window; Nesbitt is trampled by a horse carriage. Holmes suspects foul play but is rebuffed by Scotland Yard policeman Lestrade (Roger Ashton-Griffiths) when he suggests a connection between the deaths. Holmes is unjustly expelled from the Academy due to Dudley's machinations. Before he leaves, Holmes has one last match with his fencing instructor Professor Rathe (Anthony Higgins) but loses after becoming distracted by a light reflected from Rathe's ring. The mysterious hooded figure strikes again, shooting Waxflatter with a hallucinogenic thorn, causing him to stab himself as he fends off imagined gargoyles. As he dies, Waxflatter's last words to Holmes are "Eh-tar."Holmes secretly meets with Watson and Elizabeth and begins his investigation of the murders. Piecing together the clues - a jingling-bell sound made by the killer, a piece of cloth, and the blowpipe dropped at Waxflatter's murder scene - the trio uncover the existence of Rame Tep, an ancient Egyptian cult of Osiris worshipers. The cult's main weapons were blowpipes, used to shoot thorns dipped into a solution which cause the victim to experience realistic, nightmare-like hallucinations. Their investigation then leads to a warehouse of Froggit and Froggit, a Wapping-area manufacturer, where they discover a modern-day revival of the Rame Tep cult conducting their service inside a wooden-pyramid-reconstruction hidden in the warehouse. When Holmes interrupts the ceremonial sacrifice of a young girl, the three are attacked and shot with thorns by the worshipers. It is only through Holmes' endurance and the intervention of a graveyard caretaker that they're able to survive the hallucinations and their pursuers.The following evening, at Waxflatter's loft, Holmes and Watson discover a picture of the three victims and a fourth man, Chester Cragwitch (Freddie Jones). Unfortunately, Rathe and school nurse Mrs. Dribb (Susan Fleetwood) catch and separate them, preparing to expel Watson and Elizabeth in the morning. The three escape their sleeping quarters and Elizabeth returns to the loft to salvage her uncle's work. Holmes and Watson locate Mr. Cragwitch who explains that in his youth, he and the other men discovered an underground pyramid of Rame Tep while planning to build a hotel in Egypt. Their find led to an angry uprising by the local populace which was violently put down by the British Army; one boy, Eh-Tar, who along with his sister lost their parents in the uprising, swore revenge. Craigwitch is then poisoned by the hooded figure's thorn and suddenly attacks Holmes but is subdued by Mr. LeStrade, who came after reconsidering the evidence presented by Holmes.As they return to campus, Holmes realizes that Rathe is Eh-Tar, but he and Watson arrive too late to stop Rathe and Mrs. Dribb from abducting Elizabeth. Using Waxflatter's self-propelled, heavier-than-air flying machine, they travel to the warehouse just in time to prevent Rathe from sacrificing Elizabeth, setting the cult's pyramid temple afire. As Rathe escapes with Elizabeth, Mrs Dribb is killed in a fight with Holmes. Watson successfully thwarts Rathe's escape by sabotaging his carriage. Rathe then tries to shoot Holmes, but Elizabeth intervenes and takes the shot instead. Enraged, Holmes duels Rathe and manages to get the better of him when Rathe falls through the frozen River Thames. Holmes returns to Elizabeth's side and caresses her as she dies.Afterwards, as he exchanges goodbyes with Watson, Holmes explains how he figured the identity of Rathe and Dribb, who are actually Eh-Tar and his sister, with Watson pointing out that Rathe is Eh-Tar spelled backwards - a clue that Holmes had failed to notice. As Holmes leaves by horse carriage, Watson expresses per voice-over (by his older, adult self reminiscing) that he would long for yet more adventures at Holmes' side. Some time later, Rathe is revealed to be alive; he checks himself into an inn as "Moriarty", making him Holmes' arch-nemesis.