London 1963, the Doctor and Ace have come to this place and time because many years previously the Doctor had left a Time Lord artefact behind. A van parked outside Coal Hill School attracts the Doctor's attention, it is some kind of detector van. Ace pops off for something to eat: at the cafe she meets a young man who helps her with the currency of the time. One the way back to the school, a door of the van opens and a woman calls out "sergeant!" The young man responds - to Ace's surprise. The Doctor invites her to join him in the van as it drives off to "the secondary source, Totters Lane." A small group of soldiers are trying to contain the area: something is hiding inside a shed in a junk yard. When a soldier is killed by a ray of projected energy, Group Captain Gilmore orders his men to launch an attack o the shed. Despite the shed being hit with rocket mortars, the Doctor concludes that whatever is in there is probably still alive.

A Dalek emerges from the ruins of the shed but is only with help from the Doctor and Ace that the soldiers stop it. It becomes clear to Gilmore that he may need the help of this mysterious Doctor, but the Doctor has his own worries. Somewhere nearby is The Hand of Omega, a stellar manipulator - and the Daleks have come to Earth to get it. To add to that, there are now two factions of Daleks. Ace discovers that the Doctor does not intend to prevent the Daleks from getting the Hand, he just intends that the right faction intercept it...

The planet of Terra Alpha: its a nice, happy world, or rather its a world where people must be happy, happiness prevails. Anyone who is not happy, who cries or does not laugh - if they are caught by the Happiness Patrol, well...some end up auditioning for the patrol, others go to meet the Kandyman with sweets so delicious, they can be lethal and others...simply vanish.

Disturbed by what he has heard about Terra Alpha, the Doctor has come to the planet to look around. While it may be easy to maintain a happy facade, the fact remains that those who do not are dealt with harshly. Visitors to the planet, designated Sigma, are expected to be happy as well. For one such traveller, Earl, the blues are his trade but are not welcome on Terra Alpha. He just manages to keep one step ahead of the Happiness Patrol, but how can he or anyone hope to maintain a happy attitude when all around there is much that is sinister?

A group of Nazis living in South America have finally determined that the time has arrived: the Nemesis will come to Earth at Windsor, England on 23 November 1988. In 1638, Lady Peinforte awaits the results of a final calculation: and she has the means by which to travel forward in time - to 23 November 1988, and a meeting with the Nemesis, perhaps even the mysterious Doctor.

The Doctor and Ace are enjoying a jazz festival: an alarm informs the Doctor that there is something he needs to do. Realising that the world faces a great threat, the Doctor takes Ace back to the TARDIS. On the way, two men try to kill them, but they escape by jumping into the river. When the Nemesis arrives on Earth, the Doctor and Ace, Lady Peinforte and Richard and De Flores and his neo-Nazis all converge on the site. However, they are not the only parties interested as an old foe of the Doctor's arrives...

An advertising robot appears inside the TARDIS, it delivers a message about the Psychic Circus "the greatest show in the galaxy". Ace has little interest, especially since there are clowns, but the robot goads her, accusing her of being scared, so she tells the Doctor that they should go. The Psychic Circus is now based on the planet Segonax, all sorts of people arrive and the locals are not happy to see them. Making their way to the Psychic Circus, the Doctor and Ace meet a variety of characters: Nord on his bike who is abrupt with them; the stall lady who has little time for them or anyone else going to the circus; Captain Cook and Mags - the former with all kinds of tall tales, while Mags seems to keep very much to herself; and a hearse that nearly runs them over.

The psychic circus itself is not quite what it seems: from outside can be heard the noise of acts and the cheers of the crowd; inside, the ring is in darkness and when the lights come up, there is barely anyone there. Potential acts are kept locked in a cage awaiting their turn to perform. The crowd make it clear though - they want more entertainment. And the penalty for failing to entertain is more than just a low score...