Scott Henderson (Alan Curtis) picks up a grave, mysterious woman in a bar. She agrees to go to the theatre with him on the condition that they not exchange names. When Henderson returns home, he finds three cops waiting for him. They accuse him of strangling his wife to death with his own necktie, but he claims that the phantom lady can clear his name. Accompanied by the cops, Henderson interviews the barman, the taxi driver and the singer who had all seen him the previous night with the phantom lady, but they deny seeing her and his alibi is unproven. Henderson is tried for the murder of his wife and sentenced to death.
His assistant Carol (Ella Raines), who is secretly in love with him, follows the trail of the phantom lady. Aided by Inspector Burgess, who had put Henderson away and then changed his mind, she begins to question the witnesses. She surveills the barman, follows him home and questions him. Desperate to get away, the barman runs in front of a car and is killed. Carol then dresses in a tight dress and sets out to seduce Cliff Millburn (Elisha Cook Jr.), the drummer at the theatre who had seen Henderson with the phantom lady. Cliff tells her he was paid $500 to lie about seeing Henderson and the lady, but then finds out that Carol is investigating him. He tries to catch her but she runs out of her apartment building. Meanwhile, the man who had bribed Cliff to lie strangles Cliff.
Henderson's best friend Jack Marlowe (Franchot Tone) returns from South America to help Carol and Inspector Burgess in the investigation. However, he is the killer himself. By surveilling the singer, Carol finds out that the singer's hat and the phantom lady's hat are made at the same place and so trace the phantom lady. Marlowe and Carol visit the phantom lady, Ann Terry, who can clear Henderson. Ann has had a nervous breakdown following the sudden death of her fiance the previous year, making her an unreliable witness, but Carol takes her hat as evidence. Marlowe pretends to call Inspector Burgess and tell Burgess to meet them at Marlowe's apartment. At Marlowe's apartment, Carol finds incriminating evidence. Marlowe confesses that he killed Mrs. Henderson because they had been having an affair and she wouldn't run away with him. He prepares to strangle Carol, only she is saved by the buzzer. Inspector Burgess rushes in (how did he know to go to Marlowe's?) and Marlowe commits suicide.
Carol returns to being Henderson's assistant and he leaves a dictaphone recording telling her she will be his dinner date from then on. She clasps the dictaphone recorder to her chest and looks ecstatic.