The film is set in 1894. The picture begins with Moriarty and Sherlock Holmes verbally sparring on the steps outside the Old Bailey, where Moriarty has just been acquitted on a charge of murder owing to lack of evidence. Holmes remarks, "You have a magnificent brain, Moriarty. I admire it. I admire it so much I'd like to present it, pickled in alcohol, to the London Medical Society." "It would make an impressive exhibit," replies Moriarty.
Holmes and Watson are visited at 221B Baker Street by Ann Brandon (Ida Lupino). She tells him that her brother Lloyd has received a strange note: a drawing of a man with an albatross hanging around his neck, identical to one received by her father just before his brutal murder ten years before. Holmes deduces that the note is a warning and rushes to find Lloyd Brandon. He is too late, as Lloyd has been murdered by being strangled and having his skull crushed.
Holmes, disguised as a music-hall entertainer, attends a garden party, where he correctly believes an attempt will be made on Ann's life. Hearing her cries from a nearby park, he captures her assailant, who turns out to be Gabriel Mateo, out for revenge on the Brandons for the murder of his father by Ann's father in a dispute over ownership of their South American mine. His murder weapon was a bola. Mateo also reveals that it was Moriarty who urged him to seek revenge.
Holmes realises that Moriarty is using the case as a distraction from his real crime, a crime that will stir the British Empire: an attempt to steal the Crown Jewels. Holmes rushes to the Tower of London, where, during a struggle, Moriarty falls, presumably to his death. In the end, Ann is married and Holmes tries to shoo a fly by playing the violin, only to have Watson swat it with his newspaper, remarking, "Elementary, my dear Holmes, elementary."
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