One dark night, Uncle Ming attempts to exorcise angry spirits in a haunted house but is unsuccessful and he narrowly escapes. He brings his two ghostly companions (Big Pao and Small Pao) with him to a nearby town. The town is under attack by a group of bandits with supernatural powers. The thugs are led by Devil Lady, a powerful evil witch doctor.
When Ming and the Paos are having dinner in a restaurant, Captain Chiang comes to harass them, and the Paos take revenge by playing tricks on Chiang. Just then, Chiang's master, Uncle Nine, appears and he subdues the two ghosts and traps them inside a wine jar. As Ming is no match for Nine in magic powers, he pleads with Nine to release the Paos. Nine agrees to set the ghosts free but warns Ming that he must part ways with them. Big Pao is captured by Devil Lady later due to Chiang's act of mischief. Devil Lady casts a spell on Big Pao, making him see people dressed in Taoist robes as monster birds, and sends him to attack the town.
During the chaos, Devil Lady breaks into the town prison to free two of her bandits who were captured earlier by the townspeople, but falls into a trap instead. Uncle Nine defeats Devil Lady in a fight and the evil sorceress falls into a well and dies. However, the spirits of the two bandits escape and possess two men, and go out to cause trouble again. Nine and Ming combine forces to contain the evil spirits in wine jars and fry them in hot oil. Just then, the coin sword binding Devil Lady shatters and the sorceress' spirit is set free to take revenge. Eventually after a long battle, with the help of the Pao ghosts, Nine and Ming succeed in destroying Devil Lady once and for all.