Private investigator John Trent (Sam Neill) investigates a claim made by Arcane Publishing director Jackson Harglow (Charlton Heston) of the alleged disappearance of popular horror novelist Sutter Cane (Jürgen Prochnow), who vanished days before his latest book was released. Harglow requests Trent recover the unfinished final story of Cane's popular series and assigns editor Linda Styles (Julie Carmen) to accompany him. After reading a few of the novels for research, Trent experiences vivid nightmares of monsters and deformed people murdering each other with axes. Linda explains the stories are known to cause disorientation, memory loss, and paranoia in "less stable readers." Trent notices a series of red lines on the book covers that, when aligned properly, form the outline of New Hampshire and mark a location alluded to be Hobb's End, the fictional setting for many of Cane's works.As they set out to find the town, Linda experiences bizarre phenomena during the late-night drive; a boy riding a bicycle whose visage changes as she somehow passes him three times; the yellow road lines vanish followed by the road itself disappearing; and the car seemingly driving over thunderhead storm clouds. They enter a rustic covered bridge in darkness and inexplicably arrive in daylight hours in Hobb's End on the other side. Trent and Linda search the small town and begin encountering fictional people and landmarks described in Cane's novels. They are checked into a hotel by Mrs. Pickman (Frances Bay), later revealed to have been torturing and eventually killing her husband. At The Black Church, described in Cane's books as the fount of evil that is polluting the entire town, Trent and Linda watch as a group of townspeople arrive wielding shotguns and torches, demanding Cane return a missing child. Johnny, the son of one of men of the group, suddenly appears in the doorway to the Church, supplanted by Cane himself. The townspeople are then set upon by attack dogs and driven off.Believing the events to be staged, Trent prepares to go back to Arcane, but is prevented when Linda steals the car keys. She heads to the Black Church to confront Cane, and is exposed to his final novel, In The Mouth Of Madness which drives her insane. Trent is approached at a bar by Johnny's father warning him to leave before the evil infects him as it has the inhabitants of Hobb's End. Trent later returns to the bar and witnesses the man commit suicide with a shotgun as he proclaims to merely be "a character written to do it." Outside the bar, a mob of mutated, monstrous-looking townspeople descend upon him with shotguns and torches. He flees to the hotel and discovers Mrs. Pickman and Linda have also been altered into mutated versions of their former selves. Trent then attempts to drive away from Hobb's End but is repeatedly teleported back to the center of town, subsequently crashing while swerving to avoid hitting Linda. He awakens in a Catholic confessional where Cane explains the popularity of his stories will soon free an ancient race of monstrous beings that will reclaim the Earth. Cane brings Trent to his writing studio and tells him he is an invented character in one of the stories, and has no choice but to return the In The Mouth Of Madness manuscript to Arcane and begin the destruction of humanity.After giving Trent the manuscript, Cane tears open his face like a piece of paper, ripping a hole that leads into darkness. Trent flees through a long tunnel as the group of monsters chase him and suddenly finds himself laying on a country road, apparently back in reality. As he returns to New York, he repeatedly receives and burns new copies of the manuscript. Back at Arcane Publishing, Trent meets with Harglow who informs him Linda never existed; he was sent alone to find Cane. Furthermore, he had delivered the manuscript months ago and the book has been on sale for weeks with a movie adaptation set to release soon. Trent suffers a psychotic break and is arrested after he murders several people with an axe. Dr. Wrenn (David Warner) visits him in the psychiatric hospital and, after listening to Trent recount his story, dismisses him as insane and leaves. Trent wakes the following day to find his cell door torn from its hinges and the residents of the hospital slaughtered. He departs, hearing over an ambulance radio that the world has been overrun with mutant creatures and outbreaks of suicide and psychotic mass murders. Trent goes to see the In the Mouth of Madness metafilm, laughing hysterically as he watches his own experiences. As it "catches up" to his current situation, his laughter becomes insanity-laced sobs of despair, finally realizing that he is just a work of fiction.