Jack Harrison (Goldblum) and Gil Turner (Begley) are writers for "The Sensation", a supermarket grade tabloid run by Turner's father Mac (Norman Fell). Jack is a more serious journalist using The Sensation as a stepping stone to a better career, while Gil is a gangling yes-man ever ready to win his father's approval.

When Mac Turner receives a homemade videotape of two panicked men running from a creature they believe to be Frankenstein's monster, along with a waist-down shot of the suspected monster, he dispatches his son and Jack to Transylvania to follow the lead. Jack tries unsuccessfully to beg off, but is told by Mac that if they both again come back with nothing, they're both fired...unless they can bring a story that will bring a banner headline "Frankenstein Lives!"

Planes, trains and buses later, Jack and Gil arrive at their destination. Once off the bus, Jack immediately spots Elizabeth Ellison, a pretty female tourist (Teresa Ganzel) from New York City, whom he hits on. Gil immediately sets out on their assignment, just as quickly drawing hysterical ridicule when he tries to question a hotel desk clerk about the whereabouts of Frankenstein, who shares Gil's inquiries with the staff and patrons, including the mayor (Jeffrey Jones).

Jack rescues Gil and pulls him out of the hotel to avoid further embarrassment. Both then take off for their hotel. Seeing them leave, a gypsy woman orders her male companion to bring them to her.

Jack and Gil arrive at their hotel, which resembles a 17th century castle, complete with a gated entrance, but adorned with an "Opening Soon!" banner and signs denoting the acceptance of credit cards. They are met at the gate by Fejos (Michael Richards), a butler with an odd sense of humor. They meet for brunch with Mayor Lepescu, where they also meet Radu (John Byner), Lepescu's hunched-over manservant who addresses everyone as "master".

Both Gil and Jack learn that something's amiss about Transylvania, despite being laughed off by the locals, including Inspector Purcek (Bozidar Smiljanic), head of the local police. After meeting the gypsy, who tells them they must continue their pursuit of their find, they encounter a series of real-life horror creatures, including a Wolfman (Donald Gibb), a female vampire (Geena Davis), and a swamp monster that grabs Gil by the crotch as Gil tries to escape a frightening face-to-face confrontation with the object of their mission himself.

They eventually learn of a Sicilian doctor, Victorio Malavacqua (Joseph Bologna), who lost his license to practice medicine. Finding out that Malavacqua has been giving care in a sanitarium, Gil tries to go there to make an appointment but is rebuffed by the guard. Gil eventually sneaks in and finds Percek and Malavacqua talking about the latter's "experiments", including one involving a patient, Kurt Hunyadi, that fits the description of the Frankenstein monster, which Malavacqua claimed had died. An exhumation of the body later proves otherwise.

Gil learns that Radu is in cahoots with Malavacqua, serving as his lab assistant. Malavacqua also displays a tendency towards madness when within the confines of his laboratory, but returns to normal when he leaves it. It is later revealed, as Gil and Jack go on a search for Elizabeth's missing daughter Laura, that not only has Malavacqua faked Hunyadi's death, but is also his creator, along with that of the vampire Odette, the wolfman Larry, and the swamp creature Twisto. It is also revealed that Malavacqua has engaged in this type of bizarre work to clear his family's name...his father tried to cure the common cold by injecting foreign viruses but instead was remembered as the man who brought herpes to Sicily.

The story ties together after Jack is attacked by the Wolfman. In an attempt to rescue Jack, Gil pulls him off Jack, only to be carted off by the Wolfman. The police arrive, but refuse to listen to Jack's story and order him put in the local police lockup. Elizabeth rescues him and learns that the entire police force is at the wine festival instead of searching for her missing daughter. Jack heads off to Malavacqua's lab and Elizabeth goes to the festival. As she's being hauled away by police after confronting Percek, the town is horrified as the monster returns in the flesh, carrying Laura in his arms. Perceived to be dead, it's later learned she was just sleeping.

Jack and Gil arrive, having confronted Malavacqua, and explain Malavacqua's actions to the townspeople, that Malavacqua was legitimately trying to create normal lives for those seen as outcasts or freaks by the townspeople, who now welcome them with open arms.

Finding out that the story is even bigger than what they bargained for, Gil takes enough pictures and both gather enough material to last weeks for the tabloid...more than enough to make up for their failures. And...Mac gets his banner headline.