The story arc of Halloween continues in Haddonfield, Illinois, on Halloween (October 31, 1978), to the tune of "Mr. Sandman". The story reprises the last major scene of the first story, in which 17 year-old babysitter Laurie Strode (Jamie Lee Curtis) sends two young children, Lindsay Wallace (Kyle Richards) and Tommy Doyle (Brian Andrews) away from the Doyle house to run to the neighbors and call the police.Laurie is left to confront the masked 21 year-old killer Michael Myers (Tony Moran) by herself.
He attempts to strangle her, but she is able to pull the mask away from his face for a moment. Alerted by the children's screaming, psychiatrist Dr. Sam Loomis (Donald Pleasence), Michael's doctor for 15 years, comes to Laurie's rescue and shoots the hulking figure once, and then six more times - the crazed and wounded killer falls backwards from the second floor balcony and lands on the ground below.
Bloodied and in near-shock, Laurie quizzically states: "Was it the boogey-man?" while Dr. Loomis confirmed: "As a matter of fact, it was." But the body of the assailant, escaping sure death, vanishes from the lawn into the night, leaving only an imprint on the grass and blood stains. Loomis tells the next-door neighbor to call the police: "...he's still on the loose..."
As a police car pulls up, from the POV of the killer watching from a shadowy distance, Dr. Loomis is heard exclaiming to Sheriff Leigh Brackett (Charles Cyphers): "I shot him six times. I shot him in the heart...This guy, this man, he's not human."
Radio reports announce that there are three bodies (all victims were teenagers) found in the upstairs bedroom of a Haddonfield house. The killer is a mental patient who has escaped the previous night from the Smith's Grove-Warren County Sanitarium.
Insane killer Michael Myers (Dick Warlock) enters a home where an elderly couple named the Elrods lived (the husband is asleep in front of the television, playing Romero's Night of the Living Dead). Myers grabs a butcher knife from the kitchen of the gray-haired, pink bathrobe-wearing wife (Lucille Benson), who is preparing a sandwich. He leaves his own blood drippings on her cutting board.
The worried young neighbor Alice (Anne Bruner), comes out of her next-door house when she hears screams, and becomes the killer's first victim inside her living room when she is stabbed in the chest with the butcher knife and blood spurts onto her neck.
Meanwhile at the Doyle house, stab-wounded, bruised and shock-stricken Laurie Strode is taken on a stretcher by two paramedics, the ambulance driver Budd (Leo Rossi) and Jimmy (Lance Guest), to the local Haddonfield Memorial Hospital.
As they arrive, a bleeding boy (with a razor-blade embedded in his mouth) in a pirate's costume is led to the Emergency Room. Drunken Dr. Frederick Mixter (Ford Rainey) orders Laurie to be sedated, although she protests.
Dr. Loomis searches the neighborhood in Sheriff Brackett's patrol vehicle, as the skeptical sheriff argues: "You couldn't have shot him six times...I think you missed him...No man could take six slugs." The doctor barks back: "This isn't a man!"
When they see a possible suspect with a "Michael Myers" mask and a trick-or-treat bag, they chase after him. The fleeing figure is hit by the front of a speeding second police car driven by Deputy Gary Hunt (Hunter von Leer). The victim's body is incinerated when the car slams it into a parked van, and the two cars catch fire.
Loomis recommends that a forensic dentist check the teeth to verify if it is his long-time quarry. The victim in the freak accident, although thought at first to possibly be Myers, is later identified as 17 year-old Bennett 'Ben' Tramer (Jack Verbois).
Sheriff Brackett is horrified to learn that his daughter Annie (Nancy Loomis) has been one of the three murdered teenagers. After having identified Annieďż˝s body, the grief-stricken Brackett blames Loomis and goes home to his wife, leaving Hunt in charge. The killer inadvertently hears a radio report, from a loud boom box carried by a teenager in the downtown area, that Laurie has been taken to the Haddonfield Hospital, and he follows her there on foot.
The hospital's night watchman/security guard Mr. Garrett (Cliff Emmich), distracted by a magazine and the movie Dementia playing on a TV, fails to notice Michael Myers enters the hospital on his surveillance video camera. Nurse Karen Bailey (Pamela Susan Shoop) arrives late for her night-shift on the ward, and is reprimanded by supervising Nurse Mrs. Virginia Alves (Gloria Gifford).
In Laurie's hospital room, Jimmy (who has taken an interest in Laurie) tells the semi-sedated patient about Michael Myers. (He describes how Michael, "that little kid" had infamously murdered his own sister with a butcher knife in the upstairs bedroom at the Myers home 15 years earlier in 1963 on Halloween night - "his anniversary").
She learns that Myers had escaped and was targeting her - and she asks: "Why me?" While Garrett is outside checking the disconnected phone system, he is clobbered on the head with a claw hammer in the hospital's store room (where he had found numerous open locks). In another part of town, the Myers house is pummeled by rocks and stones from an angry mob. The house is empty ("He just isn't there"), and a sweep through town has reveals nothing.
Dr. Loomis describes Myers' reappearance to Deputy Hunt: "He came back...He waited with extraordinary patience. There was a force inside him biding its time." He had been an immobile, waiting, and quiet "ideal patient" at the Sanitarium, and the unprepared staff was unaware of what he was really becoming. Buxom Nurse Karen agrees to make out with lecherous ambulance driver/paramedic Budd in the therapy room's hydrotherapy whirlpool tub ("It's hot in here") before the two met their predictable fate after sex.
After Myers turns up the temperature controls outside the room, Budd is strangled (with a cord) and killed by the brutal killer while checking the thermostat gauge outside the room (without her knowledge).