Walker and his guards are gathering up all the escaped ghost prisoners in the Ghost Zone, but they can't seem to get control of one ghost -- Wulf. They trap him, but then let him out, and he tries to escape by using his claws to tear a hole through the dimension. But he has a collar on, that electrifies him when Walker presses a button. Walker offers to take the collar off if Wulf captures the only other escaped prisoner out there - Danny Phantom.
Walker gives Wulf his crew of ghosts to start a mass invasion in Amity Park, and cause havoc. Due to the ghost attack, there's an assembly in Danny's school, to give some rules and restrictions to the kids to keep them safe from the ghosts, made none other by ghost hunters and Danny's parents -- Maddie and Jack.
Walker and his crew, and Wulf sneak into the assembly and begin overshadowing the citizens of Amity. There are too many people around for Danny to go ghost. Wulf tries to overshadow Danny, but Maddie saves him with the Fenton Bazooka. Wulf gets the chance to escape, and he takes it, Walker's henchmen follow him. Walker wants to keep an eye on Maddie because he thinks she can serve some purpose to them.
Jack and Maddie form a club of ghost hunters - including Dash, Kwan, and Paulina, who are really Walker and his crew. The next day at school, Jack makes a ghost shield using the Fenton RV to protect the kids from the ghosts. Wulf manages to get through the shield, and destroys it along with the Fenton RV. Wulf tries to destroy everyone, but Walker's crew uses the collar, but Wulf escapes again. Danny goes ghost.
He begins chasing Walker's henchmen, but Jack uses the Fenton Bazooka to try to shoot Danny - thinking he is evil since he's a ghost, and not knowing he's his son. Jazz pushes him and he just misses Danny and hits Walker's men, and they are teleported back to the Ghost Zone. Walker's top henchman manages to capture Wulf and harms him, Danny then learns that Wulf isn't an enemy, since Walker's guards are after him as well. Danny manages to help Wulf escape. Then, Maddie comes and tries to shoot Danny and Wulf with the Fenton Bazooka, but they get away in time.
Danny, Sam, and Tucker decide to keep Wulf at Tuck's house. Danny goes back to the school to get the Fenton Thermos, when he overhears a meeting. He goes to check it out and a possessed Kwan traps him in the room. Dash takes Danny by the throat and pins him against the wall - then Walker comes out of Dash's body and shows his true form.
Danny goes ghost again and uses his plasma blasts to break free of Walker's spell. The citizens of Amity -- overshadowed -- begin chasing Danny outside the school and fighting him. Danny manages to escape and get home, he turns on a ghost shield around his house, so the ghosts can't get in.
Walker pushes the button to electrify Wulf with the collar, but Tucker finally manages to get it off Wulf's neck. Wulf immediately escapes Tuck's house. Danny wakes up, and the shield is still up, but Tuck and Sam get in, since it's a ghost shield. Tucker shows Danny a news report on TV, it's a speech given by the Mayor -- overshadowed by Walker -- which tells the citizens that Danny is the cause of all the ghost chaos.
Danny leaves his house right away and goes to the live speech, then the havoc begins. All the non-overshadowed citizens flee, except Maddie and Jack who try to capture Danny. Walker (in the Mayor's body) takes Danny down underground with all the overshadowed citizens, while Jack and Maddie begin getting the equipment ready to destroy Danny.
Underground, Walker starts taunting Danny. Danny takes out the Fenton Thermos. An overshadowed Paulina comes and fights Danny first. Danny takes the ghost out of her and he gets sucked in the Fenton Thermos. Paulina realizes that Danny means no harm. Possessed Kwan takes Danny's Fenton Thermos. With his ghost powers, Danny knocks the ghosts out of Mr. Lancer and Kwan, but he can't get the ghosts back in the Ghost Zone -- since he can't find the thermos. But just then -- Maddie, with the Fenton Bazooka, traps them in the Ghost Zone.
She tries to shoot Danny too, but a possessed Principal Ishiyama pulls him from the shot just in time. Her and possessed Dash are about to suck Danny in the Fenton Thermos when Wulf comes to the rescue and knocks the ghosts out of them, and Maddie traps them in the Ghost Zone using the Fenton Bazooka.
In desperation, Walker -- possessing the Mayor takes Danny and puts on a play in City Hall, while the cameras are rolling. He pretends that Danny is harming him. Wulf again comes to the rescue, but after the damage is done. He takes Walker out of the Mayor's body, and when Maddie tries to put Danny in the Ghost Zone with the Fenton Bazooka, Wulf puts himself and Walker in his place.
Wulf makes his final statement saying they'll meet again and Walker tells Danny that he has lost, and that he's an enemy in both the real world and the Ghost Zone. Walker and Wulf are sent back to the Ghost Zone and Maddie, once again, tries to shoot Danny with the Fenton Bazooka, but it's out of ammo. He escapes, but the damage has been done. He is hated by his whole town except just a few people. The newspapers are printed -- Danny is declared "Public Enemy Number One," but it still doesn't stop him from protecting the town and being a hero.