Aaron Boone dreams of Midian, a city where monsters are accepted. At the request of girlfriend Lori Winston, Boone is seeing psychotherapist Dr. Phillip Decker, who convinces Boone that he committed a series of murders. Decker is actually a masked, family-hating serial killer who has murdered several families. Decker drugs Boone with LSD disguised as lithium and orders Boone to turn himself in. Before he can do so, Boone is struck by a truck and taken to a hospital. There, Boone overhears the rants of Narcisse, a seemingly insane man who seeks to enter Midian. Convinced that Boone is there to test him, Narcisse gives Boone directions to the hidden city before tearing the skin off his face in order to show his "true" face. He is quickly subdued by hospital staff, and Boone leaves.
Boone makes his way to Midian, a city beneath a massive graveyard in the middle of nowhere. He encounters supernatural creatures Kinski and Peloquin. Kinski says they should bring him below, but Peloquin refuses to allow in a normal human. Boone claims to be a murderer, but Peloquin smells his innocence and attacks him. Boone escapes, only to encounter a squad of police officers led by Decker. Boone is gunned down after Decker tries to get him to turn himself in and then yells that Boone has a gun. Due to Peloquin's bite, Boone returns to life in the morgue. When he returns to Midian, he finds Narcisse there and is inducted into their society by the Nightbreed's leader; Dirk Lylesburg. In an initiation ceremony, Boone's touched by the blood of their deity, Baphomet.
Seeking to understand why Boone left her, Lori investigates Midian. She befriends a woman named Sheryl Anne, and drives to the cemetery with her. Leaving Sheryl Anne at the car, Lori explores the cemetery, where she finds a dying wolf-like creature. A woman named Rachel (a nightbreed with the power to transform into smoke) pleads from the shadows for Lori to take it out of the sunlight. Once in the shadows, it transforms into a little girl; Rachel's daughter Babette. Lori asks after Boone, but is rebuffed by Lylesburg and scared off by Peloquin. While leaving the cemetery, Lori discovers Sheryl Anne's corpse and her killer, Decker. Decker attempts to use Lori to draw Boone out of hiding. Boone rescues Lori, and Decker learns Boone is unable to be killed due to his transformation. Decker escapes and Boone takes Lori into Midian. Rachel explains to Lori that the monsters of folklore were peaceful beings who were hunted to near-extinction by humans. Boone and Lori are banished from Midian by Lylesburg. Decker learns how to kill the Nightbreed, and murders the residents of the hotel where Boone and Lori are staying. When Boone discovers the crime scene, he is unable to control his thirst for blood and begins drinking. The police find Boone and take him into custody. At Decker's urging, the police form a militia led by Police Captain Eigerman. A drunken priest named Ashberry joins them as God's servant in their upcoming battle against Midian. Lori, Rachel and Narcisse rescue Boone, and the four return to Midian where Boone convinces the Nightbreed to stand and fight.
