In 1974, music composer/singer-songwriter Winslow Leach is heard by widely acclaimed record producer Swan as Winslow plays an original composition following a set run through by the 1950s-style nostalgia band ‘The Juicy Fruits’, which Swan produces. Swan believes Winslow’s music perfect to open “The Paradise” — Swan’s highly anticipated new concert hall — and has his right-hand man Arnold Philbin steal it, under the guise of producing Winslow.
One month later, Winslow goes to Swan’s Death Records to follow up about his music but is thrown out. He sneaks into Swan’s private mansion and observes several women rehearsing his music for an audition. One is Phoenix, an aspiring singer whom Winslow deems “perfect” for his music. Winslow realizes Swan’s plan to open the Paradise with his music after he is thrown out again. In response, he disguises himself as a woman to sneak in and try to speak to Swan. Swan has Winslow beaten and framed for drug dealing. Winslow is given a life sentence in Sing Sing Prison and his teeth are extracted and replaced with metal ones (part of an experimental prisoner program to decrease infection amongst inmates, funded by the Swan Foundation).
Six months later, Winslow hears that ‘The Juicy Fruits’ have made an anticipated hit record of his music with Swan’s backing. After a breakdown, he escapes prison in a delivery box and breaks into the Death Records building. A guard startles Winslow as he is destroying the records and presses, causing him to slip and fall face first into a record press, which crushes and burns the right half of his face, also destroying his vocal cords. He barely manages to escape the studio, falling into the East River as the police arrive.
A disoriented, and now deformed, Winslow sneaks into the Paradise costume department and dons a long, black cape and a silver, owl-like mask, becoming the Phantom of the Paradise. He terrorizes Swan and his musicians and nearly kills ‘The Beach Bums’ (formerly ‘The Juicy Fruits’, who have traded doo-wop for surf music) with a bomb while they are playing a heavily reworked version of Winslow’s own Faust song. The Phantom confronts Swan, who recognizes him as Winslow and offers the composer a chance to have his music produced “his” way. In a specially built recording studio, Swan provides the Phantom with an electronic voice-box, enabling him to speak and sing. Swan asks Winslow to rewrite his cantata with Phoenix in mind for the lead. Although Winslow agrees and signs a contract in blood, Swan breaks the deal by telling Philbin that he resents Phoenix’s “perfection” for the role. The Phantom completes Faust, but Swan replaces Phoenix with a pill-popping male glam rock prima donna named “Beef” in the lead of Winslow’s Faust and relegates Phoenix to backup.
Swan steals the completed cantata and seals the Phantom inside the recording studio with a brick wall. Winslow escapes and confronts Beef (a comic allusion to the shower scene in Psycho) and threatens to kill him if he performs. Beef tries to flee, but is forced by Philbin to stay and play with the band ‘The Undeads’ (the ‘Juicy Fruits’/’Beach Bums’ rebranded again as a glam/Goth act) who now all resemble Cesare the Somnambulist from The Cabinet of Dr. Caligari. As Beef performs, the Phantom, hidden in the rafters, strikes and electrocutes Beef with a stage prop. Horrified, Philbin orders Phoenix onstage and she is an immediate sensation.
Swan seduces Phoenix in her dressing room after the show with promises of stardom. As she leaves, she is spirited away by the Phantom to the roof. The Phantom tells Phoenix his true identity and implores her to leave the Paradise so Swan won’t destroy her too. But Phoenix does not recognize or believe him and flees. At Swan’s mansion, the Phantom observes Swan and Phoenix in a tight embrace. Heartbroken, he stabs himself through the heart with a bowie knife. However, Swan tells the Phantom that he cannot die until Swan himself has died. The Phantom attempts to stab Swan, but Swan is unharmed. Looking down at Winslow, Swan hisses in an almost reptilian voice, “I’m under contract, too.”
Rolling Stone announces the wedding between Swan and Phoenix during Faust’s finale. The Phantom learns that Swan made a pact with the Devil in 1953: Swan will remain youthful forever unless the videotaped recording of his contract is destroyed, and photos age and fester in his place. The tape reveals footage of Winslow signing his contract with Swan and a new one Swan made with Phoenix. On a live television camera, the Phantom realizes Swan is planning to have Phoenix assassinated during the ceremony. He destroys all the recordings and heads off to the wedding.
During the wedding, the Phantom stops the assassin from hitting Phoenix, who instead shoots and kills Philbin. The Phantom swings onto the stage and rips off Swan’s mask, exposing him as a monster on live television. A crazed Swan attempts to strangle Phoenix but the Phantom intervenes and stabs him repeatedly. In doing so, the Phantom’s own stab wound reopens and he starts bleeding. As he is dying, Swan is carried around by the audience, who join in the mania, stabbing him. The dying Winslow removes his mask to reveal his own face and holds out a hand to Phoenix. Swan dies, allowing Winslow to die of his own wound. As Winslow succumbs, Phoenix finally recognizes him as the kind man she met at Swan’s mansion and embraces him in death.