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The movie opens with a brief prologue in which Detective Scotty Ferguson (Jimmy Stewart) and a uniformed police officer are chasing a crook across some rooftops. Scotty misses a jump from one rooftop to another and is left hanging from a rain gutter several stories up. The uniformed officer falls to his death trying to rescue Scotty.

Some time later, Scotty is almost finished physically recuperating from his brush with death, but the cop's death has left him with an unbearable fear of heights which causes him dizzy spells in high places. According to his doctors it will take a similar emotional trauma to rid him of his phobia. Because of his fear, he resigns from the police department. He commiserates with his ex-girlfriend Midge (Barbara Bel Geddes) who is obviously still in love with him, though he doesn't know it.

Scotty meets up with an old friend, Gavin, who is in the shipping industry. Gavin married into the business when he married his wife Madeline, about whom he is now very worried because she appears to be possessed by the spirit of a dead woman. Scotty scoffs at the possibility that this could be true, but he nonetheless agrees to be hired by Gavin to follow Madeline and keep her safe.

Scotty follows Madeline (Kim Novak) around San Francisco. First she visits the grave of a woman named Carlotta who died in 1857. Then she visits a florist and buys a bouquet. She then sits in a museum with the bouquet next to her and stares at a painting of Carlotta. From the bouquet, which matches the bouquet Carlotta holds in the painting, and from Madeline's hair, which is styled exactly like Carlotta's, it is clear that Carlotta must be the woman she's "channeling". Finally, Madeline goes to a hotel where she keeps a room for herself. Scotty learns from the hotel receptionist that the house once belonged to Carlotta.

Through Midge, Scotty learns of a historian who knows Carlotta's history, and from him Scotty learns that Carlotta went mad because of the disappearance of her child and eventually killed herself. Midge wants to know why Scotty is interested in Carlotta, but he puts her off. Midge deduces for herself that Scotty is following Gavin's wife, but Scotty isn't interested in sharing any more details with Midge.

On another day of following Madeline, Scotty is shocked when she takes a dive into the San Francisco Bay. He jumps in and rescues her, then takes her back to his apartment, where (off-camera) he undresses her and puts her in bed. It's getting more and more obvious that Scotty is not just watching Madeline anymore -- he is falling for her. Madeline awakens to find herself naked and in a stranger's bed, but Scotty reassures her that he means no harm and tries to ask her what happened. They talk and flirt back and forth until Gavin calls Scotty to find out what happened to Madeline, as she hasn't come home. Scotty assures Gavin that Madeline is okay, but while he's on the phone, Madeline grabs her clothes and leaves. Midge happens to be driving by at that moment and witnesses Madeline's departure.

Madeline comes back to Scotty's place the next day to thank him. They wind up spending the day together, and out in the park among the redwood trees Madeline appears to channel Carlotta's spirit, but Scotty can't get any good information out of her. At last, Scotty can't hold back his growing feelings for Madeline, and he kisses her, and she kisses back. It appears she is entrusting herself to him.

Midge asks Scotty to come to her place. She has painted for him a picture of herself as Carlotta, perhaps thinking he will clue in to the fact that she still loves him, but the picture drives him away instead. He goes back to his apartment, and Madeline drops in on him again to tell him about a horrible dream she had in which she eventually is confronted by a monstrous black shape and falls to her death from a church tower. From the description of the tower and its surroundings, Scotty is able to pinpoint the place where the dream occurs, and he resolves to take Madeline there so she can walk through the reality of the place and perhaps close out her dream once and for all. They go to the mission, which looks exactly like Madeline described it, and she begs Scotty to let her go alone into the church tower. Scotty doesn't want her to go alone, but she prevails upon him and begins running up the tower stairs all the way to the top. Scotty panics and chases her up the stairs, but his fear of heights won't allow him to reach the very top, and through a window he sees Madeline fall screaming to her death on the church's lower roof.

Madeline's death is ruled a suicide, and Scotty is acquitted by the court of any wrongdoing and forgiven readily by Gavin, who announces his intention to return to England and give up the shipping business. However, Scotty can't let go of his guilt, and he has a nervous breakdown. Midge tries to reach him but realizes that he'll be in love with Madeline forever, and so she finally gives up on him.

After 6 months in a mental hospital, Scotty is released, but he still sees images of Madeline everywhere. Finally he stumbles across a woman named Judy (also Kim Novak) who, except for her hair and clothing, is the spitting image of Madeline. Scotty starts up a relationship with her and, over the course of their relationship, totally remakes Judy over to look and dress just like Madeline. Once Judy's transformation is complete, everything is wonderful. What Scotty doesn't know, however, is that Judy really IS Madeline -- or, rather, Judy is the "Madeline" that Scotty knew and thought he'd lost. In actuality, the "Madeline" Scotty knew wasn't really Gavin's wife Madeline at all. Gavin hired Judy to play the part of Madeline and lead Scotty around by the nose all the way to the church tower, where Gavin would dump his murdered wife's body off the top of the tower, making Scotty the perfect witness to a "suicide". The plan worked perfectly, except Judy had fallen in love with Scotty in the process, and now she was willing to change herself back into Madeline all over again if it meant they could be together.

Unfortunately for Judy, Scotty sees her wearing some jewelry that belonged to "Madeline", and he realizes what has really taken place. Now he's the one in control, so, telling Judy that he wants to make his memory of Madeline complete, he takes her back to the church tower and makes her climb the stairs to where Madeline supposedly jumped before. When they reach the top -- he is angry enough to conquer his fear of heights this time -- he tells her that he knows everything now, and he makes her confess what she's done. In the process, however, Judy also confesses her love for Scotty, and for a moment it appears like they might reconcile after all, but right then a monstrous black shape appears in the back of the room. It's only a nun cloaked in shadows, but Judy recognizes the shape as the shape from "Madeline's" dream, and it startles her so badly that she falls out the tower window to her death. Finally, we see Scotty climb out onto the tower window ledge and stare helplessly down at his twice-lost love, his fear of heights removed forever by this second emotional trauma.

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