Few people have the ability to see ghosts, and few spirits are able to communicate with the outside world, but the earth is nonetheless full of supernatural forces – the remnants of every creature killed before its time. Some degenerate into monstrous creatures, others exist for centuries increasing in power and retaining a human mind. A number of these creatures have formed 'The Parliament of Spooks' and their sole aim is to steal back life from the living.

Enter Lazarus Jones, a young, idealistic Detroit cop, who is thrust into the role of Ghosthunter, after a routine patrol during his first week on the job unearths the supernatural research centre of Professor Peter Richmond. Whilst searching the facility for more clues Jones hears strange voices, and, during his investigation, he inadvertently unleashes the ghosts into the world.

Lazarus's partner, Anna Steel, is abducted by one of the ghosts, leaving Jones to clean up the chaos left by the swarm of supernatural spirits and monsters enjoying their new found freedom and running amok on earth.

One of these creatures, Astral, bonds with Jones, allowing him to see into the spectral realm. Unwillingly propelled into the role of demon hunter, Jones begins his quest to find the professor, developing an expansive arsenal of ghost-catching tools and weapons, including Ghost Lassoes, Capture Grenades and Spectral Goggles. As his adventure progresses, Jones finds himself entwined in a mysterious conspiracy that appears to be connected to a spate of recent disappearances.

Back in the '70s, whilst working in a secret research centre for the US military, Professor Richmond discovers the existence of ghosts and forms a group called the 'Ghosthunters' to capture and study supernatural creatures. The Ghosthunters discover Hawksmoor, a truly evil and malign spirit. Hawksmoor becomes obsessed with one of Richmond's associates, Kate Heller, believing her to be 'the chosen one'.

Richmond flees with his colleague, trying to keep her safe from Hawskmoor's grasp, but unfortunately things don't go accordingly to plan and both Hawksmoor and Heller's spirit form (known as Astral) become trapped within 'the array' – the machine the professor has created to capture ghosts. With Heller missing, and several children at the school killed, Richmond is framed for murder and forced to hide from the world.

When the game begins, Hawksmoor and Astral are amongst the ghosts who are released into the world. When Hawksmoor abducts Anna Steele, Astral merges with Jones to provide him with second sight.