On the Swiss mountain Trollenberg, one of three student climbers is suddenly killed, his head ripped from his body. Two sisters, Anne (Munro) and Sarah Pilgrim (Jayne), a London mind-reading act, are travelling by train to Geneva when Anne faints as the train passes the mountain. Upon waking, Anne insists that they must get off at the next stop.
UN troubleshooter Alan Brooks (Tucker), in the same train compartment as the sisters, goes to Trollenberg's observatory, where Professor Crevett (Warren Mitchell) explains that, despite many climbing accidents, no bodies are ever found; an always-stationary radioactive cloud is regularly observed on the mountain's south face. Brooks learns that similar incidents took place in the Andes three years earlier, before a similar radioactive cloud vanished without a trace. Local rumors circulated that something was living in the mist.
Anne is giving a mind-reading demonstration at the hotel when she "sees" two men in a base camp hut on the mountain: Dewhurst (Stuart Saunders) is asleep when the other man, Brett (Andrew Faulds), under some kind of mental compulsion, walks outside. Meanwhile, the cloud has enveloped the hut. Anne suddenly faints again, and Brooks phones the hut but no one answers.
A rescue party ventures to the hut looking for both men. Anne, in a trance-like state, urges the rescuers to stay away. Inside the hut, the group discover that everything is frozen solid, despite the hut being locked from the inside. Dewhurst's body is found under the bed, its head missing. A spotter plane arrives and circles overhead, and a man is seen off in the distance. At his location, the first rescuer there finds a rucksack with a severed head inside. He is quickly set upon and killed by Brett, who later attacks and kills a second rescuer.
Now at the hotel, Brett storms in and launches an attack on Anne. The men manage to subdue him, and during the struggle Brett sustains a severe head gash, but no blood flows from the wound. Brett is heavily sedated and locked away. Brooks recalls a similar incident in the Andes that followed a similar pattern: a man murdered an elderly woman who allegedly possessed psychic abilities just like those displayed by Anne. The killer's body was discovered to have been deceased for at least 24 hours prior to his murder of the old women. Brett escapes his improvised cell and resumes his hunt for Anne, this time armed with a small hand axe. Before he can reach Anne, he is quickly shot and killed by Brooks.
The cloud has begun to move down the mountainside towards the hotel, so the group retreats to the heavily fortified observatory. As they enter the cable car, a mother realises that her young daughter is missing. In a thickening mist a giant, multi-tentacled creature with a single huge eye appears at the hotel, smashing down the front door. Brooks manages to rescue the child from the lobby, both of them narrowly escaping its grasp. They return to the cable car, but the delay has given the thickening mist a chance to reach the car platform. The transport motor begins to freeze, starting and stopping, the cable slipping, but the cable car arrives safely. The single cloud has now split and become four while converging on the observatory.
Hans (Colin Douglas), who left the hotel, suddenly turns up at the observatory. Once inside, he begins exhibiting the same obsession with Anne. Hans tries to strangle her, but the group can only stop him by killing him. As the tentacled monsters near the observatory, everyone makes Molotov cocktails to combat them. By radio, Alan orders an aerial firebombing raid against the observatory, which has a reinforced concrete roof and walls that can withstand the assault.
Journalist Philip Truscott (Payne) strikes one of the creatures with a Molotov cocktail, setting it ablaze. He is caught from above by one of the tentacled monsters on the observatory's roof. With another Molotov cocktail, Brooks sets that one ablaze, forcing the burning creature to release Truscott. Later, Truscott does the same as another one-eyed monster manages to breach a thick wall, trying to get at Anne. The aerial firebombing assault begins and is successful at torching the remaining creatures.
The Trollenberg Terror was the final film produced by Southall Studios, one of the earliest pioneer film studios in the UK, and was one of the last films released by Distributors Corporation of America.
Mitchell's role was originally meant to be played by Anton Diffring, but Diffring pulled out of the part at the last minute.
Film historian and critic Leonard Maltin considered The Trollenberg Terror as "ok, if predictable", a feature that showed its humble origins, being adapted by Jimmy Sangster from the British TV series (also called "The Trollenberg Terror") about cloud-hiding alien invaders on a Swiss mountaintop. Maltin noted that the film was "hampered by low-grade special effects".
The main title music from "The Crawling Eye" was featured on the album Greatest Science Fiction Hits V by Neil Norman and His Cosmic Orchestra, released in 1979 on GNP Crescendo Records.
The film was mentioned in Stephen King's 1986 horror novel It as having been watched by one of its protagonists, and the Crawling Eye itself later appears as a manifestation of the novel's title monster.
Under the title The Crawling Eye, the film was the first of many productions to be mocked on the TV series Mystery Science Theater 3000, after the series moved from KTMA to Comedy Central. The episode aired on 11 November 1989. The Crawling Eye was also briefly mentioned at the end of the final episode of the show.
Freakazoid episode "The Cloud", airing 16 December 1995, spoofed the opening credits of the film, as well as key elements of the plot (though with victims being turned into clowns instead of being killed).
A song called "Crawling Eye" was featured on American horror punk band the Misfits' 1999 album Famous Monsters. The song's lyrics directly referenced the plot of the film.