The story takes place in the year 1941 and the research scientist Elspeth "Doc" Holliday is dispatched to the town of Burkittsville by the Spookhouse, a fictional classified government agency charged with investigating paranormal occurrences. It is reported that during the early 1940s, a hermit named Rustin Parr abducted seven children from Burkittsville and, apparently without motive, murdered all but one in his basement. He forced the surviving child, Kyle Brody, to stand in a corner and listen to the screams of the children being tortured and murdered. Afterwards Rustin Parr left his house in the forest, walked into town, and said to a local shopkeeper, "I'm finally finished." The player must guide Holliday through her investigations, to see if there is any truth to Parr's claims that he was under the influence of otherworldly forces when he committed the murders.
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