Magician Montag the Magnificent delivers hectoring speeches about the nature of reality to his audience and then performs mutilation tricks on female "volunteers". The women appear unharmed immediately afterward but later collapse, dead, in public or at home—mutilated in the same grisly fashion suggested by Montag's stage tricks (cut in half with a chainsaw, drilled through with a punch press, etc.). Audience member Sherry Carson, a local TV talk show hostess, and her boyfriend Jack begin to suspect that Montag is somehow involved in the murders. Jack and fellow reporter Greg attempt to research the case but are unable to come up with any solid evidence.
Montag agrees to appear on Sherry's show to perform a fire trick; when the cameras roll, he hypnotizes not only everyone in the studio, but also the viewing audience at home. With a wave of his hand, Montag starts a blaze and is guiding Sherry and two plainclothes cops toward it when Jack intervenes and pushes Montag into the fire instead. Screaming, the magician dies.
Back at home, Sherry and Jack have a drink as they discuss their strange experience. Suddenly, Jack laughs and begins peeling his own skin from his face to reveal that he is actually Montag. "What makes you think you know what reality is?" he asks Sherry, before disemboweling her with his bare hands. But Sherry, still alive and laughing maniacally, tells the baffled Montag that none of what has happened was real--and that even he is part of her illusion. "You are no longer even here," she informs Montag. "You'll have to start your little charade all over again."
"But I...I am Montag!" the magician stammers helplessly. Then he is back onstage, dazed, reciting the same speech that he delivered to his audience at the beginning of the film: "What is real? How do you know that at this second you aren't asleep in your beds, dreaming that you are here in this theater?" And in the audience an unimpressed Sherry turns to Jack, muttering, "You know what I think? I think he's a phony."