The episode begins with Patrick Jane and Agent Teresa Lisbon walking into a place crowding with cops, ambulances, and news cameras. It turns out the body of a missing girl has been found. While her parents are giving a press conference outside, Patrick wanders into their house, looks around and makes himself at home (he makes a sandwich and some tea). When Mrs. Tolliver comes back into her house, Patrick sits down and talks with her about her daughter's death. He asks her for her opinion on what could have happened and whether she thinks her husband might be guilty. When her husband comes in, Patrick confronts him directly with the question, "I'm the police, did you kill your daughter?" Mr. Tolliver is startled and angry from this questioning and starts going on about making Patrick's life "miserable". Mrs Tolliver becomes agitated as she realises that her husband is guilty. She gets up, fetches a gun and shoots him several times through the chest. Teresa and the cops come rushing in to find the dead husband, the distraught wife, and Patrick, who puts up his hands and says "Honestly, it's not as bad as it looks."
Two weeks later, Lisbon, Rigsby, Cho and Van Pelt (who has just joined the team) arrive in LA to deal with a double homicide which looks like it may have been committed by the serial killer Red John. Patrick turns up as well, even though he's still on suspension for what happened with the Tollivers, and tries to persuade Teresa to let him work the case, because Red John "belongs" to him. When Teresa won't listen, he goes over her head and manages to get his suspension lifted. He tells Teresa he will redeem himself.
The victims are the wife of a golf pro and a doctor who was a family friend. The doctor had been hit with a golf-club, and the wife had been cut open on her bed and left to bleed to death, Red John style. A trademark Red John smiley face was drawn on the wall in her blood. Patrick takes one look around the room and says that the murderer is not Red John, because the smiley face is drawn on the wrong wall - Red John always draws it where it's the first thing you see as you come into the room. He says they don't need him, and he leaves. Lisbon and the team look back through past cases and realise that Patrick is right, and this murder doesn't fit the pattern. Teresa swallows her pride and calls Patrick to ask him to come back, but in fact he'd never left and walks in a moment later and meets Van Pelt for the first time.
Cho and Rigsby go and interview the husband, Price, (and his brother, Tag) who had been away playing golf the weekend of the murders. Patrick and Teresa go to the offices of the doctor who was killed (Tannin) and speak with his partner, Dr. Wagner. Patrick asks if Tannin kept a diary, but Dr Wagner says he doesn't think so. As they're leaving, Patrick asks if Dr Wagner will prescribe him some sleeping pills, but when the doctor says he has to have an appointment first, Patrick tells him not to worry.
At dinner that evening, Grace asks Patrick about his past as a fake psychic. We discover that Patrick doesn't believe in psychics or the afterlife, and Grace does. Patrick embarrasses Rigsby by telling Grace that Rigsby intends to ask her to go back to his room with him. Later that evening a note is slipped under Patrick's hotel room door. It says "Greetings, old friend, it's been a while. I hope you are keeping well. I am thriving and happy. I have 12 wives now and will soon begin courting number 13. Why can't you catch me? You must feel so powerless and stupid and sad. Oh well. All the best. Red John." Patrick says that Red John would never risk capture just to taunt him, and this isn't Red John. Teresa tells him to get some sleep, but he stays up all night writing in a diary.
Next morning, when Teresa sees Patrick hasn't slept, she makes an appointment for him with Dr Wagner. The "Red John" note has been analysed, and some of the victim's blood was on it, as well as one of Tag's hairs. When Tag is questioned, they discover that he was having an affair with his brother's wife, and therefore Price had motive.
Patrick goes to his appointment with Dr. Wagner. In a flashback, we find out about Patrick's past. Five years earlier, he had been on a TV show, where he did his fake psychic thing and was then interviewed about how he was helping the police with their attempts to find Red John. He claimed he could get a "psychic fix" on Red John and that Red John was "an ugly, tormented little man, a lonely soul, sad, very sad". When he came home that night, he found a note on his door that read, "Dear Mr Jane, I do not like to be slandered in the media, especially by a dirty, money-grubbing fraud. If you were a real psychic, instead of a dishonest little worm, you wouldn't need to open the door to see what I've done to your lovely wife and child." When he opened the door, he saw the smiley face on the wall and his dead wife and child.
Patrick doesn't talk about any of this with Dr Wagner. He makes up a whole lot of stuff instead. As the doctor gives him his prescription, he says that he knows everything Patrick said was fiction and asks why he didn't tell the truth when he's clearly in real pain. Patrick says, "The truth is mine." Patrick asks the doctor again about Tannin's diary, claiming that someone had definitely said there was a diary and that the cops would come and search for it the next day. He hugs the doctor and leaves. Dr Wagner goes to Tannin's office and starts to search it. Patrick (who took the doctor's key as he hugged him) suddenly shows up in the doorway and proceeds to pull a diary out from under a bookcase. As he's about to leave, the doctor pulls a gun on him and demands the diary. It turns out that it's the one that Patrick was writing the night before. Patrick asks the doctor why he killed his partner (the girl was killed as a decoy), and it turns out it was because his partner was going to expose his financial fraud. Patrick pretends that he's taken the bullets out of the gun, distracts Dr Wagner, and runs. Rigsby arrives in time to arrest the doctor.
The next day when Patrick turns up at work, he find that team is not happy with him for not letting them in on his suspicions, and for allowing them to tear apart the victim's family when he knew they weren't involved. He does manage to make Teresa smile, though, by putting a paper frog on her desk, which suddenly jumps at her and makes her gasp.
The episode ends with Patrick coming home at night to the same house we saw in the flashback, only this time it has no furniture or pictures. He goes upstairs to the same room where his family was killed, and the smiley face in their blood is still on the wall. He lies down, fully clothed, on a mattress on the floor underneath the smiley face.