About to leave London for a much-needed vacation, Holmes and Watson receive a cryptic invitation. Intrigued, Holmes accepts and is met by the prime minister of the fictional country of Rovinia, who begs him to escort Prince Nikolas home. It turns out that his father has been assassinated, and Nikolas is the heir. Holmes agrees.
Sherlock Holmes entre dans son salon et se rend compte qu'il a été cambriolé mais alors qu'il se confronte au bandit, ce dernier disparaît, à la grande surprise de Sherlock. Holmes tente d'oublier l'incident en allumant un cigare mais le voleur réapparaît et il tente alors de lui reprendre son butin en sortant un pistolet de son peignoir et en tirant sur l'intrus qui se volatilise. Une fois qu'Holmes récupère ce qui lui appartient, le sac disparaît de ses mains pour réaparaître dans les mains du voleur qui disparaît rapidement par une fenêtre. A ce moment précis, le film se termine inopinément sur l'image de Sherlock complètement déconcerté
Le film débute à Londres, où le professeur Moriarty (Ernest Torrence) vient d'être arrêté grâce à la perspicacité de Sherlock Holmes (Clive Brook). Au tribunal, Moriarty prononce un discours dans lequel il promet que les trois personnes impliquées dans sa condamnation mourront avant lui : le juge Erskin, le colonel Gore-King et Sherlock Holmes. Pendant ce temps, Holmes prévoit de commencer une nouvelle vie à la ferme avec sa fiancée Alice Faulkner.
Sherlock Holmes takes a holiday by visiting his old friend Sir Henry Baskerville (Lawrence Grossmith). Sherlock's vacation ends when he and Dr. Watson suddenly find themselves in the middle of a double-murder mystery. Now they have got to find Professor Robert Moriarty (Lyn Harding) and the horse, Silver Blaze before the great cup final horse race and bring the criminals to justice.
Cambridge student Prince Alexis (Reginald Denny) is accused of stealing the athletic funds. Friend and fellow student Watson recommends he seek the assistance of classmate Sherlock Holmes. Meanwhile, while honing his observational skills out in the countryside, Holmes falls and is knocked unconscious. A young woman passerby, Alice Faulkner (Carol Dempster), comes to his aid, much to his delight.
A movie theater projectionist and janitor (Buster Keaton) is in love with a beautiful girl (Kathryn McGuire). However, he has a rival, the "local sheik" (Ward Crane). Neither has much money. The projectionist buys a $1 box of chocolates, all he can afford, and changes the price to $4 before giving it and a ring to her. The sheik steals and pawns the girl's father's pocket watch for $4. With the money, he buys a $3 box of chocolates for the girl. When the father notices his watch is missing, the sheik slips the pawn ticket into the projectionist's pocket unnoticed. The projectionist, studying to be a detective, offers to solve the crime, but when the pawn ticket is found, is banished from the girl's home.
Sherlock Holmes (Basil Rathbone) and Dr. John Watson (Nigel Bruce) receive a visit from Dr. James Mortimer (Lionel Atwill), who wishes to consult them before the arrival of Sir Henry Baskerville (Richard Greene), the last of the Baskervilles, heir to the Baskerville estate in Devonshire.
The film begins with Moriarty and Holmes verbally sparring on the steps outside the Old Bailey where Moriarty has just been acquitted on a charge of murder due to lack of evidence. Holmes remarks, "You've a magnificent brain, Moriarty. I admire it. I admire it so much I'd like to present it, pickled in alcohol, to the London Medical Society". "It would make an impressive exhibit", replies Moriarty.
A convicted thief in Dartmoor prison (played by an uncredited Cyril Delevanti) hides the location of stolen Bank of England printing plates inside three music boxes (each of which plays a subtly different version of "The Swagman"). The boxes are sold at a local auction house.