On October 30, 1988, nearly ten years after his escape from Smith’s Grove Sanitarium and initial massacre in his hometown of Haddonfield, Illinois, Michael Myers, having survived the explosion at Haddonfield Memorial Hospital albeit severely burned and left in a coma since that night, is being transferred from Ridgemont Federal Sanitarium back to Smith’s Grove in an ambulance. Along the way, two of the paramedics escorting Michael begin to discuss his living relatives and one notes that the only family member he has left is a niece living in Haddonfield. Upon hearing this Michael comes out of his coma, kills all four occupants of the ambulance before escaping and begins to make his way back to Haddonfield.
Jamie Lloyd, Michael’s niece, and the daughter of Laurie Strode, who was killed nearly a year prior along with Jamie’s father in a car crash, has been adopted by the Carruthers family including Richard, Darlene, and their daughter Rachel. At the same time of Michael’s escape Jamie, who is having trouble sleeping, begins having a hallucination of the ambulance he is being driven in. After being comforted by Rachel she returns to her room where she privately grieves over the loss of her mother and is then attacked by Michael though this turns out to be a vivid nightmare she is having.
On Halloween, Dr. Samuel Loomis, Michael’s psychiatrist, who also survived the explosion but was left badly burned and scarred over most of his body, learns of Michael’s escape and, after seeing firsthand the remains of the ambulance and its occupants, immediately leaves to find him. He arrives at a gas station in the middle of nowhere minutes after Michael, who had arrived before him, has killed a mechanic, taking his coveralls, and a waitress. Loomis sees Michael and pleads with him not to go to Haddonfield. Knowing that his pleas are falling on deaf ears, Loomis shoots at Michael who manages to avoid being shot and makes his way back into the garage where he steals a tow truck. He hits a gas pump that causes the entire station to explode, destroying Loomis’ car, and burning the phone lines. Loomis barely survives and continues towards Haddonfield on foot.
Meanwhile, Rachel’s mother and father ask her to take Jamie out trick or treating that night. She gets into an argument with them because she has a date with her boyfriend, Brady, which upsets Jamie who overhears the conversation though the two reconcile shortly thereafter when Rachel promises to take Jamie for ice cream later that day.
At school Jamie is tormented by her classmates about her mother being dead and her relation to Michael Myers. Rachel and her friend, Lindsay, pick Jamie up after school and take her to the drugstore where Brady and Kelly Meeker, the sheriff’s daughter, work. While Rachel and Brady argue over the fact that they cannot go out that night, Jamie wanders the aisles and finds a clown costume similar to the one her uncle wore the night he killed his sister Judith. Unbeknownst to anyone, Michael is also in the store as well and steals a mask. While Jamie is about to try on her costume she has another hallucination of Michael as a young boy while looking in the mirror. The real Michael then appears and goes to grab her. She screams and backs into the mirror which alerts Rachel and the others. They find Jamie unharmed and help her back to the front while Michael slips away unnoticed.
Loomis continues walking towards Haddonfield when he is picked up by Reverend Jackson P. Sayer, a preacher who claims to be hunting evil, who gives him a ride. After arriving in town, Loomis goes to the police station looking for Sheriff Brackett but is told that he retired in 1981 and moved to Florida. The new sheriff, Ben Meeker, Kelly’s father, is initially hesitant to believe that Michael has returned to Haddonfield but decides to take the warnings seriously. The two leave to go find Jamie who Loomis believes is Michael’s intended target.
After Rachel and Jamie leave to go trick or treating, Michael enters the Carruthers house and finds Jamie’s shoe box filled with pictures of himself as a child as well as his sister Laurie confirming that Jamie is indeed his niece.
During their visits to one of the houses in the neighborhood with a group of children, Kelly answers the door and Rachel sees Brady coming down the stairs. She tries to leave but he catches up to her and tries to explain why he is there. While they are arguing again, Jamie continues trick or treating with the other children and becomes separated from Rachel. Loomis and Meeker arrive at the Carruthers house and find evidence of Michael’s presence including the family dog Sundae dead in Jamie’s closet. While all of this is going on, Michael arrives at the electrical substation and kills an electrician named Bucky by throwing him into the transformers which causes a blackout in the entire town.
While searching for Jamie, Rachel has an encounter with Michael and flees as he approaches her. She eventually finds her before they are then found and taken away by Loomis and Meeker. They return to the station to find that Michael has already been there as well and has killed most of the officers. A lynch mob is formed by the leader of the town’s truckers and owner of a local bar, Earl, after they arrive and are informed by Loomis that Michael has returned home to kill again. Meeker is initially furious at him for inciting the men but relents when he realizes that with most of his department dead they are the only line of defense that the town now has. Deputy Logan, the only other surviving officer, who had been waiting at the Carruthers house and heard about the massacre the station, is radioed by Meeker to meet at his house where they are taking Rachel and Jamie to protect them. He leaves but is unaware that Michael is in the backseat of his squad car.
Meeker, Loomis, Rachel, and Jamie arrive at Meeker’s house where Kelly and Brady are barely able to cover up their attempt to have sex. The group decide to barricade all the windows and doors aside from the main entrance. Loomis leaves shortly thereafter to look for Michael. Meeker then leaves as well following a radio message indicating that the truckers have accidentally killed a man, mistaking him for Myers, leaving Deputy Logan as the groups only protection. Unbeknownst to any of them, Michael is already in the house. Kelly, who was preparing coffee, mistakes Michael for the deputy who has already been killed. When she discovers this he gets up and uses Logan’s shotgun to impale her through a door before disappearing into the house again.
Rachel, who was in the basement waiting for a message from the state police about their arrival time, heads upstairs to inform the deputy only to discover his and Kelly’s corpses. Rachel also finds that Jamie is missing before running into Brady who insists that Jamie is dead and that they must escape before they are killed too. The front door is locked with a deadbolt and Brady attempts to shoot the lock out only to discover that the door is made of metal which means without the key they are trapped. Jamie emerges from hiding as does Michael. Brady tells Rachel and Jamie to run to the attic while he tries to hold Michael off. He reloads his gun too late and fires but misses Michael. He then tries using it as a melee weapon to no avail and is easily disarmed. His last attempt to fight ends with Michael breaking Brady’s hand before lifting him off the ground by his neck which is then crushed in his grasp.
The girls escape the attic through a window onto the roof, and Jamie is lowered down safely, but Michael attacks Rachel and knocks her off the roof. Jamie tries to wake Rachel up, refusing to believe that she is dead from the fall, but is forced to leave her behind. She encounters Loomis down the street and they take shelter in Jamie’s school. Michael appears and throws Loomis through a classroom door before continuing his pursuit of Jamie who falls down a flight of steps near the exit. Before Michael can kill her Rachel appears, having survived the fall, and sprays Michael with an extinguisher which blinds him long enough for the two to escape. They are met outside by the truckers where Earl at first wants to enter the school to kill Myers but is convinced the best thing to do is leave.
The truck carrying Rachel and Jamie drive out of Haddonfield for the next town over to meet with the Illinois State Police. A lone trooper stops and gives them directions to a nearby station. As they continue driving Michael climbs into the bed of the truck, having been underneath it the entire time. He kills all three men in the back before smashing his hand through the drivers window and ripping Earl’s face and neck open from the roof. Rachel takes the wheel after getting Earl’s body out of the truck and does her best to keep Michael from getting to Jamie. She stops short causing Michael to fall from the truck and then hits him, sending him flying into a ditch. Meeker then arrives with the remaining truckers and the state police. Meanwhile Jamie has gotten out of the truck and approaches Michael, touching his hand before being beckoned away by Meeker and Rachel. Michael is still alive and gets back up only to be greeted by a hail of gunfire which culminates with him falling down an abandoned mine-shaft to his apparent death.
Following the nights events, Loomis and Meeker take both girls home where they are met and consoled by Richard and Darlene. Meeker asks if it is over to which Loomis assures him it is and that Michael is buried in hell where he belongs. Darlene takes Jamie upstairs to give her a bath. Jamie dons her clown mask and approaches her step-mother from behind. A piercing scream is heard from upstairs. Loomis rushes to the staircase and is horrified to see that Jamie is standing top the landing holding a pair of bloody scissors. Loomis attempts to shoot her but is disarmed by Meeker who, along with Rachel and Richard, look upon Jamie in horror. Loomis continues to cry hysterically as Jamie again holds the scissors up, having become possessed by the same evil as Michael.