Wesley comes home with a special present: a shaman that has the ability to take and restore souls. Everyone except for Cordelia and Angel are keen on bringing Angelus out to quiz him on how to kill the Beast. Angel resists, but eventually decides it's a decent idea. After a cage is built and Angel is locked inside, the Shaman begins the ritual to restore Angelus.
However, instead of taking his soul, he tries to kill Angel. Angel stops him and the gang concedes it was a bad idea. The shaman has writing on his body that reveals how to kill the Beast. Cordelia gets a vision that shows them where to find the sword needed to destroy the Beast. Connor, Wesley, Cordelia and Angel go to find the sword, which they do. Angel saves Cordelia from some fire and she confesses her love for him. Connor and Wesley catch them kissing. Connor's mad and he and Angel fight.
When they get back to the hotel, Angel gives the gang on inspiring speech, and it looks like all the past wrongs are forgiven. Suddenly, the Beast shows up and fights Angel. Just when Angel's about to die, Connor shows up and saves him. Angel drives the sword through the Beast's head and kills him. The sun comes back out. Angel and Connor make up. Everyone is so happy.
A little while later, Cordelia gets all seductive and talks Angel into getting into bed with her. In the middle of sex, Angel makes an awful face and it appears he's losing his soul once again.
Surprise! He's suddenly back in the cage with the shaman standing over him saying, "Now the illusion becomes reality." Angel did in fact lose his soul, but the events only occurred in his head. He turns, looks out the cage and starts to chuckle maniacally.