The story begins at the Los Angeles airport were Dr. Richard H Thorndyke (Mel Brooks) is introduced. Throughout the airport he encounters some strange characters, first a screaming woman running toward him with an umbrella, who turns out to just be excited to see her husband, and a gay man posed as a police officer (Fredric Franklyn), who tries to come on to him in the mens bathroom. Thorndyke then meets Brophy (Ron Carey), his driver and sidekick, who likes taking photographs of everything. They soon depart for PsychoNeurotic Institute for the Very, Very Nervous, where Thorndyke is to be appointed the new director position. The old director, Dr. Ashley, died of a sudden heart attack, however Brophy thinks he was a victim of foul play.
Arriving at the institute, Thorndyke is greeted by the staff, Dr. Philip Wentworth (Dick van Patten), Dr. Charles Montague (Harvey Korman), Nurse Diesel (Cloris Leachman), and Professor Lilloman (Howard Morris), his old professor and mentor. The latter of which begins to treat Thorndyke for his high anxiety caused by his fear of heights.
As the staff is having dinner, Thorndyke inquires about the changes that Dr. Ashley wanted. As Dr. Wentworth begins to answer he is interrupted by Nurse Diesel, which causes the others to become uncomfortable. After dinner the Thorndyke learns that the patients rarely recover. Later that night while Thorndyke is preparing himself for bed, he is startled when a large rock is thrown through his window with a note attached welcoming him to the Violent Ward. Soon after loud noises are heard from Nurse Diesels room, she claims it was the TV. We discover that she and Dr. Montague have a BDSM relationship and the screaming heard was from Dr. Montague.
The next day Thorndyke is going over some of the patient files. One patient in particular, Zachary Cartwright III (Ron Clark) whose family is paying $12,000 a month for his recovery, files shows that he gets well then suffers again from another psychotic break. Thorndyke wants to examine Cartwright and while he is not looking Montague secretly hits and scares Zachery, causing him to have a psychotic break again. After Zachary is escorted away, Thorndyke is annoyed by light coming from the building opposite his office. He is told its Author Brisbane (Charlie Callas), a multi-millionaire industrialist, and has it arranged for him to meet Author after lunch.
During a hypnotic session with Dr. Lilloman, Thorndyke has another case of high anxiety. Lilloman suggest Thorndyle to fight out the emotions, in his hypnotic state, Thorndyke gets up and starts boxing across the room striking Lilloman and the two begin to fight. Montague enters and begins refereeing the two before breaking up the fight. Lilloman reveals to Montague that Thorndyke has high anxiety, he leaves the office and begins telling everyone about Thorndykes anxiety. Thorndyke is then introduced to Brisbane, who believes he is a dog.
Dr. Wentworth (Dick van Patten) and Nurse Diesel are talking, and Wentworth wants to stop mistreating the patients so Diesel gives him permission to leave. While driving Wentworth turns on his radio, which begins plays a song very loud, after several attempts he is unable to turn off the radio or escape his car due to all the handles break off. After failing to escape his car Wentworth dies from a cerebral hemorrhage from busted eardrums. Thorndyke is scheduled to attend a psychiatric conference in San Francisco, although hesitant due to the death of Dr Wentworth, he is convinced to go by Nurse Diesel and Dr. Montague.
Thorndyke, along with Brophy, travels to San Francisco to attend the conference. Upon signing into their hotel, they are informed by the desk clerk (Jack Riley) that a "Mr. MacGuffin" changed his room reservation to the top floor of the hotel. After arriving to his room he repeatedly pesters the bellboy Dennis (Barry Levinson) for a newspaper, wanting to see if there was any information about Dr. Wentworths death. After several requests for a newspaper, Dennis is driven mad, and attacks Thorndyke while he is in the shower with the newspaper, in reference to the shower scene from the movie Psycho. Thorndyke is then shown laying in the shower, appearing to be dead as the paper's ink runs down the drain, the scene ends with him calmly saying That kid gets no tip.
After showering Thorndyke hears repeated knocking on his door, in spite of him asking who it is, the knocking continues till he opens the door. He opens the door and is met by peculiar woman who is acting very paranoid.
She introduces herself as Victoria Brisbane (Madeline Kahn), the daughter of Author Brisbane. She inquires about her father; he informs her that her father thinks hes a dog. She then states that her father is as sane as she is, and that his life is in danger. Brophy then knocks on the door to inform the doctor that he will be late for the conference. Unbeknownst to the two, they are being watched by a mysterious stranger (Rudy De Luca), who is also a professional killer.
After the conference Victoria and Thorndyke are having drinks at the hotel bar. Victoria asks what the H stands for. Thorndyke reveals that it stands for Harpo, due to his mothers love of the Marx Brothers. The pianist (Murphy Dunne) then asks Thorndyke to sing, first declining he is encouraged to sing the song High Anxiety. Victoria drops her pocket book when a picture falls out, revealing that the man he met at the institute was not her father. They are overheard by the stranger from earlier. We then see Diesel and Dr. Montague plotting to get rid of Thorndyke by framing him for murder. Back at the hotel, Brophy, after checking out early, begins to take pictures of the hotel. We then see Thorndyke approach a man and shoot him before walking away. He goes to the elevator and waits for it, as the elevator doors open, Thorndyke exits the elevator and sees an imposter Thorndyke. Confused at what is going on the imposter removes his masks to reveal the stranger who was watching him earlier. Walking to the lobby Thorndyke is pointed out as the one who shot the man. In a state of panic Thorndyke runs out of the hotel.
After escaping to Golden Gate Park, he phones Victoria to inform her of what happened, and asks to meet him at the park. While reading the paper he notices a kit of pigeons forming, they proceed to crap all over his coat. Thorndyke runs as the birds chase him and continue crap all over him, in reference to the movie Birds. He finds shelter only to notice that there is a hole in the ceiling and the birds are there and continue to crap on him.
Thorndyke meets up with Victoria, whos on the verge of a nervous breakdown. The two look at the paper showing Thorndyke shooting the man. He then remembers that he was coming down the elevator at the time, and asks Victoria to contact Brophy and have him blow up the negative to prove he is innocent.
Back at the institute Brophy is developing the photo, which still turns out to be too small to see the figure in the elevator. He vows to keep enlarging the photo till they can see Thorndykes face. We then see Brophy examining several of the enlarged photos, he moves along the different size photos before coming upon a very large photo, which shows Thorndyke in the elevator. Nurse Diesel and Dr. Montague confront him, and proceed to lock him in the north wing to prevent him from exposing the truth. Nurse Diesel calls the killer and tells him to kill Thorndyke. While on the phone with Victoria, the killer attempts to kill him by strangling him, Victoria to misinterprets the sounds as a sleazy caller.
Thorndyke and Victoria, dressed up in disguises from items from the Salvation Army, make a scene at the airport as an elderly couple to get through the security checkpoint. The two sneaks into the institute and find Dr. Lilloman, who appears to be dead, but is only sleeping. He informs Thorndyke that Brophy was taken to the north wing due to a nervous breakdown. The three proceed to the north wing to rescue Brophy who is tied up in a room. Brophy tells them that Norton (Lee Delano) has taken Brisbane to the tower. They run to the tower to see Norton carrying an unconscious Brisbane up the tower stairs. After a few mishaps with Brophy and Lilloman, Thorndyke proceeds up the stairs in spite of his fear of heights. After falling through a step, he has begins to panic, until Lilloman helps him overcome his fear by making him remember an accident from his childhood. Overcoming his fear he climbs up the remaining stairs to the top of the tower, just in time to stop Norton from dropping Brisbane over the edge. While pulling Brisbane to safety they are approached by a screaming Nurse Diesel who then falls over the ledge to her death. After a happy reunion, Thorndyke and Victoria decide to get married.