In New York City, Dr. Saul Grissom, a pioneer in sleep disorders, calls 911 to report a fire outside his apartment. When emergency crews arrive at Grissom's building, they find Grissom's dead body, but no evidence of a fire. Skinner assigns Mulder and Alex Krycek, another agent for the FBI, to investigate the mysterious incident. Annoyed at the prospect of working with Krycek, Mulder travels to Connecticut by himself. He interviews Dr. Penelope Charyn, who explains that Grissom revolutionized sleep therapy and developed a process whereby a person's dreams can be altered by electric stimulation.

Mulder grudgingly accepts Krycek as his partner. They visit Scully in the autopsy bay. She explains that Grissom shows classic physiological responses of having been burned alive in a fire, yet his flesh is not charred. Interest in the case grows when another man, Henry Willig, is found dead in his apartment with forty-three internal hemorrhages - signs that he had been shot to death. Upon examination, no bullets or signs of foul play are detected. Mulder realizes that both Willig and Grissom were Vietnam veterans and that both were stationed at Parris Island. After further checking, the agents determine that Augustus Cole is the only surviving member of a special squad that included Willig. Cole turns up missing when he is traced to a psychiatric ward.

A mysterious government operative, X, meets Mulder in a dark parking structure. He claims that Grissom conducted sleep deprivation experiments at Parris Island in an attempt to make soldiers aggressive and fearless. He warns Mulder that Augustus Cole has not slept in twenty-four years. The agents get a break in the case when Cole steals antidepressants from a pharmacy. Mulder and Krycek are shocked when two officers shoot one another while searching the drug store. Mulder theorizes that Cole possesses the ability to project his consciousness into the minds of other people.

The agents locate Salvatore Matola, a former member of the special marine squad whose name was not officially listed on any government documents. Matola claims that a Dr. Girardi participated in the experiments. He also admits that his entire squad went AWOL and massacred everyone who lived in the Vietnamese village of Phu Bai. Mulder concludes that Cole is punishing everyone associated with the massacre for its twenty-fourth anniversary. The agents rush to a train station to intercept Girardi. Mulder draws his gun when he sees Cole, pistol in hand, approaching Girardi. In reality, Mulder is actually reacting to images projected into his mind. Seeing that Mulder is pointing his gun at innocent bystanders.

Krycek shoots at Mulder and misses. The agents track Cole and Girardi to a train car in a railway yard. Girardi is badly injured as a result of Cole's dream projection. Mulder finds Cole and tries to convince him to testify in court about the experiment. Cole projects an image into Krycek's brain, making it seem as if Cole is pointing a gun at Mulder. Krycek falls for the trick and shoots Cole. Later, Krycek reports to a mysterious tribunal that is bent on eliminating Mulder and Scully forever.