One night, The Flying Dutchman's ship is seen sailing through the seas but it breaks down after it hits a rock. The Flying Dutchman takes up residence at SpongeBob's house where he proceeds to scare, startle and surprise SpongeBob around the clock. SpongeBob does get scared and goes to Squidward for help, but unfortunately, he doesn't believe in ghosts. So he slams the door in SpongeBob's face, so he soon turns to Patrick to help, but he just closes his door. Then he hears Gary cry for help. SpongeBob enters his house to stop The Flying Dutchman. The Flying Dutchman then says that he just wanted to pet Gary, only to reveal that it was a trick by eating him. SpongeBob despairs about the death of hair until Gary appears behind him with no explanation. Soon, the Dutchman begins to take much amusement in terrifying SpongeBob (repeatedly). Eventually, all the spooky shenanigans grow old, and SpongeBob and all of the citizens of Bikini Bottom are no longer afraid of the Dutchman. This creates a panic for the old ghost who now fears that he has lost his scary touch. So SpongeBob decides to lend a hand and help the Flying Dutchman learn to scare people again. Unfortunately, his first attempt doesn't work until the customer on the mattress screamed from the startling notice of the mattress salesman. The second attempt also doesn't work since The Flying Dutchman got hit by a jump rope. The third attempt doesn't work when an old lady mistakes him for someone else. He then realizes that the Dutchman is trashing his place and tells him to get active by getting the Flying Dutchman to watch a crazy video about some mysterious people saying "The Power Within" constantly. The next attempt, however, doesn't work when Larry thought that he had a flab on his pecs. The Flying Dutchman decides to give up since maybe people don't believe in ghosts anymore. This gives SpongeBob an idea. SpongeBob then tells the Dutchman to try to scare Squidward since he doesn't believe in ghosts. The Flying Dutchman gets his revenge to go to Squidward's house and successfully scares him. The Flying Dutchman finally has the nerve to scare people again. He had a confession to make and tells SpongeBob that his ship had been repaired for three months. The episode ends with The Flying Dutchman leaving SpongeBob with a present with a scary surprise, but SpongeBob laughs at it, even though SpongeBob gets eaten by the surpise.
A giant slimy bald green monster which appears from the floor and turns into a giant ant creature which turns into a hideous baby-faced worm creature and turns into a clown-worm which turns into the face of J.R. "Bob" Dobbs with a bubblepipe which he spits out which turns into SpongeBob's head which pours out spiders and its eyeballs slither away like snakes and then the Flying Dutchman's head and arms come out of the body. In later airings, the scene was edited to just SpongeBob's eyes slithering out.
List of the Flying Dutchman's success in scaring Squidward:
Squidward's powder puff engulfs the room and his mother appears in a giant form, asking why haven't Squidward called her before melting.
A giant clarinet appears and blares music in Squidward's ear before turning into a rope which goes through Squidward's head. The Flying Dutchman appears, saying "I hear you don't believe in ghosts; as in, the Flying Dutchman!" and throws him to a flooded room where Squidward is swallowed by an immense, yellow multi-eyed monster.
Squidward finds a hole and escapes in a room where he sees a giant smiling SpongeBob, rocking back and forth and breathing very heavily.
SpongeBob's eyes turn to slither away like snakes and the spiders engulf the body and once leaving the Flying Dutchman appears, making a scary finger trick and forcing a screaming Squidward to run out of his house, screaming "GHOSTS!".
In current airings after the premiere, this episode airs after Chimps Ahoy.
Squidward's mother causes Squidward to reveal his nickname being Squiddums.
Running Gag: The Flying Dutchman failing to scare people.
It is revealed that the Flying Dutchman is or was married.
The Flying Dutchman seems to want to deny it, like the real one would.
It is shown that SpongeBob uses a built-in VCR on his TV just like in the episode Karate Island.
A scene where Squidward's mother appears as a giant ghost (not in cloud form) in his room and speaks to Squidward is a parody of the films The Land Before Time, where Littlefoot's mother appeared as a giant cloud ghost in the sky and spoke to Littlefoot, and The Lion King, where Simba's father Mufasa appeared as a giant cloud ghost in the sky and spoke to Simba.