It is Halloween, but Danny has no time to celebrate as his fight with a ghost eel goes wrong. The creature sends Danny back into Casper High where he bumps into a ladder, turning him human as the paint bucket on top falls off and all the paint spills over Dash's jacket. Dash threatens Danny until Lancer puts a stop to them, seeing the two need a better creative outlet, but Lancer decides to not give the two detention, instead he gives them something different. Lancer explains that someone out of the school faculty is chosen to decorate an abandoned haunted house for a Halloween party every year and that he has chosen both Dash and Danny to help decorate. Whoever makes the scariest Haunted House will avoid detention. The two "lucky" students also make a little side bet as well: If Danny wins, Dash has to dash around the school parking lot in his underwear. If Dash wins, Danny's stuck eating Dash's dirty, smelly, rotten underwear.
Danny tries to think of scary house plans back home, but neither Tucker nor Sam is frightened by his ideas. Sam, however gives Danny an edge by getting him a book dealing with the Fright Knight, a ghost who uses his Soul Shredder Sword to send people their worst nightmares. Danny flips through the pages and recognizes the location in one of the pictures. Taking out a map of the Ghost Zone they've been making (where Fright Knight's castle is displayed), Danny decides to take the best idea from the Fright Knight and make his exhibit. However, it's rather cheaply made and still doesn't seem to strike fear into anyone.
Tucker soon leaves to go trick-or-treating just as Danny's parents enter to see if ghosts are nearby. Danny makes them leave before Lancer comes and suspects that they helped him (and to avoid telling him this was to avoid detention). With everything planned, Danny goes ghost and checks out the competition, thinking it'll pale in comparison to his project, however Dash has managed to one-up Danny.
Desperate, Danny heads to the Ghost Zone where he enters Fright Knight's castle and avoids the many traps held inside, only to figure out his human self would be harmless to them. Turning human, he delves further in and finds the Soul Shredder lodged inside a pumpkin. Fishing it out, he starts to head back only to be surrounded by skeletons. Turning ghost, Danny begins to fight them off until they start bowing. Danny turns around to see an angry Fright Knight, coming out from the pumpkin, now free after having the sword lifted out. He demands it back, but Danny refuses, so the grumpy knight gives chase with his winged horse while Danny runs off. Danny manages to escape from the Ghost Zone and close the portal, returning to the haunted house. The Fright Knight however forces open the gates easily.
Upon his return, Sam is a bit concerned over Danny stealing the sword. Danny refuses to worry as he sticks the sword to the ground, causing it to take over the entire haunted house and turn various dummies Dash has displayed into living zombies. Lancer comes over to grade Danny's work while the Fright Knight searches for the sword. Lancer is unimpressed until the sword's effect takeover more of the haunted house and, incidentally, the entire city of Amity Park where everyday objects turn into monsters. The Fright Knight sees a screaming Dash (running away from the monsters inside the haunted house) and demands where the sword is. He gives the answer and runs like there was no tomorrow. Afterwards, Tucker casually comes over to the Fright Knight, mistaking him for Danny until he grabs the boy and demands he takes him to his sword, vowing to have it and rule over Amity Park as his new domain.
Meanwhile, Lancer is even more impressed on Danny's display (still courtesy of Fright Knight's sword). Danny handles any glaring problems by using Fenton gears to fend them off until Lancer declares him the winner. Unfortunately the Fright Knight comes to crash the party. He takes his sword back and sends both Lancer and Tucker to another dimension to outlive their worst nightmares. With only Danny and Sam left, Danny finally apologizes for getting so caught up in winning and continues fighting the Fright Knight. Meanwhile Sam manages to find his weakness from the book she bought, stating he must put the Soul Shredder in a pumpkin while chanting a spell to seal Fright Knight. Observing around, Danny spots Tucker's pumpkin bucket where he stored his candy, and after a quick battle with Fright Knight, he flips him over while chanting the spell to seal him, and takes his sword, smashing it into the pumpkin. The Fright Knight and his horse are sent back from whence they came, trapped once more.
Lancer and Tucker return safely as well. Impressed, Lancer declares Danny the winner. Feeling guilty though, Danny confesses he cheated, using his "parent's technology" to create a scary room. Lancer doesn't care however, seeing as he can now one-up his own competition, but is quick to change his mind when Maddie and Jack accidentally spray him with the Fenton Foamer. Having lost the bet, Danny is stuck eating Dash's underwear the next day.
The episode made its home video debut in the Nick Picks 3 DVD, released by Paramount Home Entertainment on February 7, 2006. It was later included on Amazon.com's Danny Phantom: Season 1 manufacture-on-demand DVD set, released on September 16, 2008, and again on the retail version of the set, released by Shout! Factory on September 13, 2011.
- When the sword starts with the transformations, just before Lancer enters, Sam has eye pupils.
- The Bat logo on the title card is similar to the Batman logo. Also, Jack and Maddie strongly resemble Batman and Catwoman, because of the face masks they are wearing.
- This episode is similar to the Nintendo GameCube video game Luigi's Mansion, in that Danny, Mr. Lancer, Tucker, and Sam battling Fright Knight is based on Luigi battling King Boo in a Bowser suit. There also different kinds of ghosts resembling Bogmire, Boolossus, and other kinds of Portrait ghosts, and normal ghosts, including Boos.
- When the monster that had formed from a stop sign when the Fright Night's sword caused monsters to form from random objects had transformed back into its orginal form, it the wrong object- orgianlly a stop sign changing to a light post. Also the name of the street on the sign on the stop-sign- turned-light-post (Elm street) is a reference to the 1984 movie Nightmare on Elm Street.