It was released directly to DVD on December 20, 2004 in the United Kingdom and on February 22, 2005 in the United States.
The film opens with a flashback depicting a young boy escaping from Cunningham Hall, a mental facility. The boy escapes through his window and manages to run into nearby woods, where two of the facility's staff pursue him. The boy escapes into an open area, when a car emerges from the darkness and runs him over, sending him tumbling into bushes. A man exits the car and looks on before returning to the car, assuming the young boy dead.
Clark Stevens (Joshua Leonard), a psychiatric intern, has come to Cunningham Hall Mental Facility to train before he can graduate to medical school. Inside, he meets some of the patients (with one convincingly pretending to be a doctor working there) and is welcomed by nurse Betty. Betty gives him keys to the facility and a walkie-talkie for communication, then takes him to the person in charge of the facility, Dr. Franks (Lance Henriksen). On the way however, they are suddenly interrupted by one of the patients named Carl, who claims that he "shouldn't be here" and patients aren't allowed to go home when they're mentally stable. Betty shrugs the accusations off and pushes Carl away.
In Dr. Franks' empty office, Clark examines his bookcase whilst waiting for Franks to arrive. He finds a book titled "Psychology and the Paranormal," which strikes his interest. He reads the first page, which implies connections between mental stability and the paranormal. Before he continues reading, Franks arrives. Clark and Frank talk about the facility and its patients, with Clark suggesting some improvements for the building, but Franks replies stern and bluntly. At this point, Dr. Morton and Dr. Douglas enter, wanting to meet Clark.
Clark now meets nurse Sara (Jordan Ladd) in the cafeteria, and she takes Clark on a tour around the facility. As they leave, mental patient Alice (Natasha Lyonne) sits watching a window, where she sees flashes of a demonic-looking boy. Sara continues the tour with Clark, but come across head nurse Hendricks, who talks to Sara privately. Whilst they're talking, Clark examines a flickering light when a mental patient claims "there's something up there." Sara returns and continues the tour, and finishes it off by taking him to the basement cells, where they hold the patients that are potential murderers and rapists - a place nicknamed "Madhouse."
These basement cells are supervised by security guard Wallace, who grants Clark and Sara access to the Madhouse. However, one of the patients seems to have a paranoid fit, and starts smashing glass with his head. Sara calls Drake, another security guard, to come down and help. This scares Clark, who backs up against a wall and is grabbed by a patient, who is holding a sharp shard of glass, trying to self-harm and bleed over Clark. Luckily, Drake arrives and beats the patient, with Clark telling him to cease because the patient didn't hurt him. Drake does indeed stop the beating and leaves, saying "let's hope he gets it right next time."
Later at night, Clark is in his room, when he witnesses a boy pass the bathroom door. Clark investigates, but no-ones there. Over the walkie-talkie, Clark overhears a report about a "situation in the rec-room," and goes to help. Instead, he spies on the situation from the door and watches Hendricks badly treat Alice with a stun-gun over medication. She continues shocking Alice with the stun-gun, but Alice is saved by Carl, who treats her sympathetically and takes her to her room.
Clark makes his way back to his room, but finds the boy from before in the hallway. Clark gives chase, and ends up at the Madhouse, where he finds no-one at the supervision desk and the door to Madhouse open. Clark enters to investigate, but finds nothing. However, Dr. Morton finds him and they talk about the mysterious boy. Morton recalls a patient from Cell #44, who escaped but apparently died - however, Morton believes him to still be alive and back in the facility. Before he can continue, Hendricks arrives and gives Clark the task of cleaning up a mess in the rec-room.
Sometime later, Clark confronts Franks about the boy. Franks denies that anyone could be running around un-supervised. Clark retells the Cell #44 story to Franks and notices a book titled "Ghosts and Hauntings" on the desk, which Franks hastily removes. When Clark leaves the office, Hendricks arrives and argues with Franks. Clark overhears some of the argument, such as Hendricks shouting "[she] knows." Soon, Sara arrives and they discuss Franks selection of weird books before Sara is requested at the nurses station for night duty.
In the nurses station, Sara and Hendricks hear a mysterious sound. Hendricks, equipped with her stun-gun, investigates the source and is led into dark stairway, when someone in a cloak attacks her and renders her unconscious. She wakes up strapped to an electric chair, and the cloaked figure plays loud music whilst torturing her with the stun-gun. She begs him to stop, and the figure disappears. However, a few moments later, he pops back up from behind the chair and continues the torture - eventually killing Hendricks.
The next day, Hendrick's body is found and is taken away. Franks assures everyone he'll "seriously review the safety protocol" to prevent this happening again. The staff are then assigned patients to interview about the murder, with Clark being assigned to the Madhouse with Drake. Drake, after getting angry at one of the patients, leaves. Clark, alone, only has a few more to get through and goes to Cell #44, where a patient hides in the darkness and refuses to talk. Clark goes away, but then the patient - who identifies himself as Ben London - starts to talk cryptically and sometimes in riddles. He tells Clark that if he's looking for the murderer, "the top of the food chain is a good place to start," which Clark infers to be Franks.
Sometime later, Clark asks Grace (the nurse in charge of medicine) what Ben's prescription is and what it's for. Grace replies that everyone in the Madhouse are on the same drugs, and Clark takes a bottle for examination. Outside, Clark sits watching the patients play, when he sees the mysterious young boy from before playing with a ball. Carl then joins him and recalls his past to Clark of how he ended up in the facility. Clark says that Carl shouldn't be in the facility anymore, and Carl agrees, "but the day [he] leaves here is the day [he] dies." Sometime later, Clark attempts to confront Sara with some questions about the Facility, but is unable due to loud screams coming from a nurse. When Clark and Sarah enter the room, they find Carl's corpse hanging from some sheets. Alice is dancing around the body and shouts to Clark "This is the only way you get out of here Clark! Carl knew and now he's free!" The death is filed as a suicide, but Clark is suspicious about it.
In a meeting later, led by Clark and Sara, Alice talks about seeing the young boy. Clark is intrigued and Alice continues, saying the boy makes sure that she "never forgets what madness feels like." After the meeting, on his way back to his room, Clark comes across Drake having sex with a patient in an open room. After Drake notices him looking, Clark leaves. Waking up the next morning, Clark gets a phone call from Sara that Drake is the murderer and has been arrested by the police. Later, Clark and Sara are in a room together where they try to solve what is happening in the madhouse. They begin to put the pieces together, but put the mystery on hold as they spend an intimate night with each other.
Taking Ben's advice, Clark does some research on Dr. Frank as well as the medication that they hand out. It is revealed that Dr. Frank has been using placebos on the patients, and that the reason none of them are getting better is because Dr. Frank was embezzling all the funding for himself.
Meanwhile, the same apparition that killed Nurse Hendricks kills Dr. Morton by cleaving the upper part of his head off with an ax. The next night, Clark confronts Ben again, and again, is only greeted by cryptic answers. Clark tells him that he is going to call the authorities about the placebos Monday morning, but still needs to find out how to stop whats killing everyone until then. The only piece of information the man gives Clark is "The truth is right in front of you." Clark goes to Sara with what he knows, and she gives him some coffee to drink filled with sleeping pills. While dreaming, Clark is haunted by the voice of the cryptic inmate and visions of the little boy. The dreams make Clark realize that it was Sara doing all the killings.
Clark wakes up and fights the effects of the drugs long enough to get back to the madhouse to talk to Ben. He arrives at cell 44 and asks Ben to show his face. He tells him that he'll be freed if he does so. Ben takes off the mask that was concealing his face to reveal himself as the little boy. Shocked, Clark stands there as the little boy quickly grows up into him. Apparently, Clark was Ben who ran away as a little boy and was presumed dead when Dr. Frank ran him over with his car. The real Clark died, and he took his identity to get back into the madhouse. He doesn't believe it at first, but then realizes his shirt is covered in blood. Ben begins to remember killing all the remaining doctors and nurses leaving only Dr. Frank and Sara still alive. Ben confronts Dr. Frank in his office, attempting to flee and destroy all evidence of his embezzlement. He tells Frank who he really is right before he kills him with the same axe he used on Dr. Morton. Sara sees him kill Dr. Frank and runs to the madhouse where she becomes trapped. Clark tells her that he returned to this place to make it better, and to get rid of everyone who didn't even try to help him. Sara tries to convince Clark that he shouldn't kill her because he loves her. Ben lowers his guard from this, and Sara attacks him, only to eventually be overpowered by Ben. As Sara begs Clark not to kill her, he replies "Clark isn't here. In fact, he never existed" right before he brings the ax down on her and the screen goes black before it makes contact. In the final scene of the film, Ben is shown entering another mental health facility, dressed as "Clark" was in the opening scene.