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A village in Canada has an old legend about a phantom that years ago killed three villagers. Many residents are afraid that the monster has come back, because some of them have seen strange luminous shapes, and then some sheep were found with their throats slashed. Their worst fears seem to be confirmed when Lady Penrose is found killed in the same way. Meanwhile, Sherlock Holmes and Dr. Watson are in Quebec, attending a meeting of the Royal Canadian Occult Society, where they are involved in a sharp debate with Lord Penrose about his village’s legend. Not long after Lord Penrose receives word of his wife’s death, Holmes receives a letter that the dead woman had written before she died, begging for his help and protection. When Holmes goes to the village to investigate, he finds himself hunting a determined murderer who is also a master of disguise.

Holmes is hired by Roland Carstairs to prevent the theft of the Star of Rhodesia, an enormous diamond owned by Carstairs’ mother, Lady Margaret. Believing the diamond will be stolen on a train trip from London to Edinburgh, Holmes deftly switches diamonds with Lady Margaret while in her compartment. Soon after, Roland is murdered and the fake diamond is stolen. Red herrings abound as Holmes, aided by Dr. Watson and Inspector Lestrade, discover the murderer’s hiding place and deduce that long-time foe Moriarty’s henchman Colonel Sebastian Moran is somehow involved in the crime.

Holmes and Watson are recruited in a serpentine fashion to escort the heir to a European throne back to his native country following his father’s assassination. Because the prince has been educated in Great Britain, Holmes persuades him to masquerade as Watson’s nephew Nicolas on a ocean liner bound for Algiers. Unfortunately the ship is filled with red herrings as well as real assassins, and Holmes is challenged to outwit them all and deliver his charge to his destination. Among the suspects are a knife-throwing circus performer, two shadowy archaeologists, a hulking deaf mute, an enigmatic ship’s steward, a chanteuse with a mysterious song case, and a gun-toting British dowager.