The movie opens with the Universal Pictures globe and star logo and theme song; Title and credits follow. The scene opens with a view of the small village of Frankenstein and the castle high on a hill in the background. An "Eingang Verboten" sign warns all to stay away from the castle, but Ygor (Bela Lugosi) stares out from a second story window. The village council meets to discuss a matter regarding the Frankenstein heir. While Inspector Krogh (Lionel Atwill) looks on, the Burgomaster (Lawrence Grant) informs the assembled, "The old Baron Frankenstein gave me this chest of papers to deliver to his son, and deliver it I shall." The other Burghers (Gustav von Seyfferitz, Lorimer Johnston, and Tom Ricketts) express their opposition to any further association with the Frankensteins who have brought death and disrepute to the village. The Burgomaster assures his colleagues he agrees with their sentiments, but he intends to meet with the Baron's son at the train station and give him his father's papers, as promised. Elsa von Frankenstein (Josephine Hutchinson) tucks her young son's blanket around him on the train. Young Peter (Donnie Dunagan) is anxious to see his nanny, Amelia, again. Elsa joins her husband, Wolf (Basil Rathbone) in the adjoining railway compartment. She notes, as she looks out the window, "What a strange-looking country." Wolf replies, "Not much like America, is it?" It is a dark scene of dead trees. The pair are excited about their new life, joking about what the castle is like. Elsa speculates about a haunted room, and Wolf assures her, "Yes, there's sure to be a haunted room. The castle itself is supposed to be haunted...because of the things my father did there." The tone turns somber as Wolf recounts the story of the creation of the creature and the death and destruction that followed, all as the result of the blunder by his assistant, Ygor.
It is pouring rain when the train pulls into Frankenstein. Wolf is greeted by the Burgomeister, the members of the council, and most of the inhabitants of the village. When Wolf tries to explain that his father was a great man and that he is sorry for the tragedy that followed, the villagers wander away. A car takes the family to the castle. The servants assist the family inside. Peter runs to see his nanny, Amelia (Emma Dunn). Benson (Edgar Norton) takes the Baron's coat. Amelia takes Peter upstairs to bed. Elsa expresses her mixed emotions about the castle then walks upstairs to join Amelia in putting Peter to bed. Wolf asks about the new servants. Benson tells the Baron that the servants are Tyrolean, "None of the people of the province would serve here, no matter what I offered to pay them." Wolf walks into the library with Benson. He sees a portrait of his father on the wall. The Baron opens the box of papers and reads the note his father left for him, "Herein you will find my faiths, my beliefs, and my unfoldments. A complete diary of my experiments, charts and secret formulas. In short, the sum total of my knowledge, such as it is. Perhaps you will regard my work with ridicule or even with distaste. If so, destroy these records. But if you, like me, burn with the irresistible desire to penetrate the unknown, carry on, even though the path is cruel and tortuous, carry on. Like every seeker after truth, you will be hated, blasphemed and condemned." Out in the rain, Ygor stares in at the Baron in the library.
Up in Peter's room, the little boy says his prayers as Amelia and his mother look on. Elsa goes to her room and prepares for bed. In the village the wagon with the Baron's crated goods is stoned by the villagers. Inspector Krogh pays a visit to the castle. He meets with the Baron. [Note: The manipulation of his wooden arm was beautifully parodied by Kenneth Mars in Young Frankenstein.] Krogh tells the Baron he will be protected while in the castle, "As long as you continue to live in this place, you're in danger." The Baron demands proof of the monster's reign of destruction. He is unaware of Krogh's encounter, but is told by the Inspector himself. While cleaning his monocle, Krogh recounts his childhood encounter with the monster and the loss of his arm, "One does not easily forget, Herr Baron, an arm torn out by the roots." Krogh explains that there have been six mysterious deaths in the village and all are unsolved. Despite the Baron's insistence he needs no protection, Krogh assures him he will respond to any call for assistance. Upon his exit, Krogh is introduced to Elsa who invites him to dinner. Up in his room, young Peter sleeps through the thunder and lightning. Ygor spies on the boy from a hidden room behind a wooden panel.
The next morning, Peter joins his parents at breakfast. Wolf walks over to the remains of the laboratory to explore it. The lab is a shambles of broken equipment. He peers down into a bubbling lake of sulphur-laden mud. Ygor pushes a stone down towards the Baron, but it misses its mark. Wolf orders Ygor down at the point of his rifle. When Wolf threatens to turn Ygor over to Krogh, Ygor explains he is already dead. He tells the Baron he was hanged once, which left him with a broken neck and he was declared dead. Ygor opens a door of stones and takes the Baron down into the bowels of the lab into the family crypt. To his amazement, the Baron sees the monster (Boris Karloff) lying on a slab. He thinks it is just the dead body of the creature and touches its hand. When the hand moves, the Baron recoils and exclaims, "He's alive!" Ygor explains the creature is sick, struck earlier by lightning. Ygor explains that the creature is, in a way, the Baron's brother and he wants him cured. Wolf is intrigued by the challenge.
The village council demands to know what is going on at the castle. Krogh tries to reassure the council and agrees to bring in Ygor to explain his role at the castle. The Baron has rebuilt the lab with his own and repaired equipment left by his father. He hauls the monster up to the lab and places it on the table. Later, the Baron and Benson arrive at the lab to begin work. The Baron carries his father's notes in the case, but Ygor refuses to let Benson into the lab. The Baron assures Ygor that his help is required and vouches for his servant's discretion. The Baron examines the creature while Benson records the notes. Wolf is amazed by what he discovers, especially that two bullets are lodged in the creatures heart, yet it still lives.
Ygor is questioned by the village council and the Burgomaster. Ewald Neumuller (Michael Mark) asks Ygor, "Has he asked you to rob and graves? To get him a body?" The council threatens Ygor to cooperate or they will see a better job of executing him for his crimes. Lang (Lionel Belmore) served on the first jury and with Neumuller found Ygor guilty and sentenced him to death. Ygor is dismissed and returns to the castle. The Baron and Benson discuss the process that gave the creature life--namely cosmic rays, "These rays are actually the source of life itself." Returning to the lab, the Baron is torn between his impulse to destroy the monster and his scientific quest to restore it back to conscious life. The Baron fires up the electrical equipment and restores the creature for a few seconds, but it lapses back into coma.
Krogh stops by the castle and enjoys tea with the Baroness. She explains that her husband is engaged with an experiment, but she has no details. The Baron, back from a walk, joins the pair for tea. Peter joins the family and asks about Krogh's arm. He mentions being awakened from a nap by a giant. His mother and Amelia attribute it to an active imagination, but the Baron and Krogh register surprise and concern on their faces--one knows and the other suspects this is not the imagination of a child, but reality. The Baron carries his son back to his room and asks about the giant. His son's description of the giant so alarms the Baron that he bolts from the room. Krogh confronts the Baron on his way back to the lab. Wolf discovers the lab table empty, the monster gone, and searches for it calling for Ygor the whole time. Up from the sulphur pit the creature crawls and grabs the Baron. It reacts to its own reflection in a mirror. Ygor finally joins the pair and explains, "You make him well with your lightning. After you go, he get up and walk. Now he's all right again." Ygor reassures the creature that the Baron is a good man, and instructs the Baron never to touch him again. Upon his return to the residence, the Baron informs Benson that the creature is alive and admits to a cold fear of it. Ygor spies on the Baron and overhears the Baron's plan to continue his experimental work and send his family away for their own safety.
Ygor plans to use the monster to extract a little personal revenge. He sends the creature after Herr Neumuller. The creature follows his wagon and waylays the man. It stages a wagon accident while Ygor plays a mournful tune on his flute. The Inspector joins the Baron and Baroness for dinner. Fritz (Perry Ivins) serves dinner in Benson's absence. A caller, one of the Inspector's men, tells Fritz that there has been an accident in the village. Krogh departs and Wolf goes to find Benson. Ygor tells the Baron that Benson came to see the creature then ran away.
Krogh attends a coroner's inquest. The doctor explains that Neumuller must have fallen asleep and fallen off his wagon. The wheels crushed his legs and chest. The widow, Frau Neumuller (Caroline Francis Cooke) is present and distraught. Krogh dismisses the council of Burghers and tells them he will make out the death certificate with Dr. Burgher (an uncredited Clarence Wilson). Krogh suggests the neck and heart be examined. Ygor is waiting outside the shop of Emil Lang, he is the town apothecary. Back at the castle, Wolf and his wife retire for the night. Elsa asks about Benson, and then admits to being afraid. Ygor plays his flute while the creature walks to Lang's shop. In shadow we see the creature kill Lang.
The next morning the angry villagers assemble and then walk to the castle. Krogh stops at the castle to inquire on the whereabouts of Benson. Wolf explains that his wife and son will be leaving for, "a slight holiday." Krogh explains that another mysterious death has occurred and that the Baron and his family should stay put at the castle. The mob arrives at the castle gate. As the crowd mills about outside, the Inspector and the Baron go inside to talk. Krogh goes up to see Peter in his room and asks about the giant. Peter shows Krogh a watch the giant gave him. It is Benson's engraved pocket watch. When Amelia returns the three walk downstairs for some hot chocolate. Elsa starts to suspect strange goings on. Krogh is called away and Wolf returns to the lab. He discovers the cave just off the sulphur pit and finds the sleeping monster. He picks up a rock and attempts to dispatch the creature but is stopped by Ygor. Ygor admits to having Neumuller and Lang disposed of by the creature. Meanwhile the ugly crowd outside the castle gate gets more unruly. Krogh returns to the castle. He finds the Baron in the Library playing darts. He explains, "My business tonight is official, not social." The Baron continues to throw darts at the board while the Inspector tells of another death--this time it is Lang. Wolf sarcastically asks if it was his father's creation, or perhaps one he whipped up. Finally, Krogh admits, "I promised your arrest to the villagers to keep them quiet...for the moment." He also admits searching the laboratory, but found nothing incriminating. He suspects Benson is dead and plans to hold the Baron as responsible. The Baron departs to remove Ygor from the estate and Krogh goes up to Peter's room. The Baron confronts Ygor with a gun and shoots and kills the man in self-defense. Krogh finds the switch that opens the wall. He enters the passage and finds Benson's dead body. In the lab, the creature finds Ygor's dead body and mourns. Krogh returns to the library. The Baron admits to killing Ygor, "He tried to murder me with his hammer, so I shot him. What are you gonna do about it?" Krogh demands to know where the monster is located. The monster carries Ygor's body to the crypt, then departs looking for revenge. He destroys the lab then seeks out the boy via the secret passage to Peter's room. The monster attacks Amelia while Krogh and the Baron play darts. It is Krogh's turn and he pokes his darts into his wooden arm, then throws the darts one at a time at the board. Elsa discovers Amelia and that her son is missing. The creature escorts Peter to the pit. He picks the child up and holds him over the pit. Peter is unafraid. For some unknown reason the creature places Peter on the ladder, and the two climb up to the lab. Krogh climbs up the ladder and confronts the creature. It pulls Krogh's wooden arm off and brandishes same. Krogh empties his service revolver into the monster, but with no effect. The monster steps on Peter while the Baron enters the lab from above. The Baron swings down on a rope and kicks the monster into the bubbling pit. The Baron picks up his son and they look down into the bubbling and flaming pit below.
At the train station the next day, the Baron and his family prepare to depart. Wolf tells the crowd, "Herewith I deed to you the castle and the estate of Frankenstein. Do with them what you will. And may happiness and peace of mind be restored to you all. Good bye." We close with the family on the train car as it pulls away from the station and the cast credits.