In his well-furnished New York apartment, Dr. Saul Grissom relaxes in the evening. Suddenly, a fire breaks out. His efforts to extinguish it only exacerbate the flames. As flames engulf the room, Grissom calls 911, and fire crews race to the scene. As the occupants of the building evacuate, we see a tall African-American man dressed in combat fatigues look knowingly back at the firemen. The firefighters break down the door - and discover absolutely no signs of fire. They only find Grissom dead on the floor.
The next day, Mulder finds the newspaper article about Grissom's death circled in his paper, and finds a cassette tape with Grissom's 911 call. Mulder plays it for Skinner, pointing out that no evidence of fire was found. Mulder wants the case, but Skinner refers him back to his wiretapping assignment.
As Mulder angrily works on transcribing tape, a sharp-looking young man hands him the 302 form approved by Skinner. Mulder is puzzled - another agent has been assigned to the case. The man replies that it is him. He introduces himself to Mulder as Alex Krycek. Mulder wants the case for himself, but Krycek won't back down. He acknowledges that he is green, but he worked hard for the case and doesn't want to give it up. Slightly impressed, Mulder tells Krycek they are going to New York.
They interview a doctor at Grissom's clinic, where Mulder learns Grissom was experimenting with sleep and manipulation of brainwaves. Scully takes the shuttle up to perform the autopsy and is startled to discover that Grissom's internal organs show all the signs of being in a fire: "It's almost as if his body believed that it were burning."
That night, a disheveled man named Henry Willig lies on his sofa watching TV. He looks up to see the man in fatigues from Grissom's apartment, whom Willig calls "Preacher." They ask how the other is doing, and each seems extremely nervous and on edge. From hearing Preacher speak about redemption, Willig realizes that Preacher killed Grissom. Preacher tells him that "all of us has to pay." Suddenly, Willig sees several Vietnamese children, all burned and blackened, holding machine guns aimed at him. Preacher tells Willig to relax, and that it's all over. Willig, relief passing over his face, closes his eyes as the children open fire.
Krycek alerts Mulder to the Willig murder. Although no bullets or gunshot wounds were found, Willig's internal organs had multiple injuries consistent with being shot. The only unusual mark found was a large scar on the back of Willig's neck. Willig was a former Marine on disability, and Mulder learns that Grissom was a doctor at Ferris Island when Willig got basic training. Willig was part of a unit of which there is now only one other survivor - Augustus Cole.
Mulder and Krycek visit the VA hospital where Cole is being held. The doctor explains to them that Cole is extremely paranoid and distrustful, and that he had to be housed in isolation because he was interfering with other patients' sleep. Before the doctor can clarify what he means, they discover that Cole is gone. Apparently, he was signed out by the doctor, but the doctor has no recollection of it. Mulder gets a call on his cell phone from the same anonymous voice that had tipped him off in "The Host." The voice arranges a meeting, telling Mulder to come alone "or I won't be there."
At an empty warehouse, Mulder meets the man, X. He immediately tells Mulder, "I don't want to be here." He gives Mulder information about the platoon Cole was a part of - an experiment to build a better soldier. Grissom and his team performed brain surgery on the Marines to eliminate their need for sleep. The result was a squad with the highest confirmed kill ratio in the Marines. He tells Mulder there is another survivor, and gives him his name. Mulder says he may need more, but X tells him "You still don't get it, do you? Closing the X-files, separating you and Scully. That was only the beginning. The truth is still out there, but it's never been more dangerous." He indicates that he knew Deep Throat, and he says that he is not willing to die for Mulder's cause. He won't speculate if Cole is behind the murders, but he does say that Augustus Cole has not slept in 24 years.
Mulder returns to the hotel to find Krycek waiting impatiently - Cole has robbed a drug store. The police have Cole trapped in an apartment building, but gunshots ring out and Cole is gone. Two officers are down, having apparently shot each other.
Mulder sends Scully the data X provided, and she is floored. Mulder hypothesis that Cole is able to manipulate dreams, create images so vivid that they can kill. He surmises that since Cole went so long without sleep he has developed this ability.
Mulder and Krycek visit Sal Matola, the last survivor of Cole's unit. He reveals that they called Cole "Preacher," since he was always carrying a bible and talking about how they would one day have to pay for their sins. Matola says the men were killing machines without the need for sleep, and that they slaughtered children. He also reveals that there was another doctor, Girardi, who assisted Grissom in the surgeries. Scully tells Mulder Girardi is coming into New York for Grissom's funeral, and Mulder suspects Cole will try to kill him as well.
They race to the train station, and Mulder sees Cole with a gun. He tells Cole to stop, but Cole psychically "shoots" Mulder, giving him time to escape with Girardi. Mulder and Krycek track Cole to an abandoned warehouse where he is torturing Girardi. Mulder gives chase and corners Cole. He tells Cole that he knows what the government did to him, and Cole says he is tired and just wants to rest. Krycek comes in and, thinking Cole has a gun, shoots and kills him. Cole's last words before dying are "Good night."
The evidence X gave Mulder is gone, stolen, and Mulder and Scully have no proof that the operations ever took place. Elsewhere, Krycek reports to the Cigarette-Smoking Man. He says the evidence has been taken care of, and that he is gaining Mulder's trust. He does say, however, that Scully is a problem, "much larger than you described." The Smoking Man ominously stubs out his cigarette, observing that "every problem has a solution."