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George and Kathy Lutz (played by Ryan Reynolds and Melissa George), along with their three children, move into what they believe will be their dream home on Long Island, New York. The house had previously belonged to the DeFeo family, where Ronald DeFeo, Jr. had murdered his parents and siblings with a rifle a year earlier. DeFeo spent most of his time in the basement where later he claimed that he heard voices urging him to commit the crime. When the Lutzes move in, George frequently complains of the cold and starts spending large amounts of time in the basement. Kathy's daughter begins acting strangely after developing a mysterious invisible friend with the same name as the murdered girl. She attempts to jump off the roof and becomes inseparable from a toy that Kathy later learns was buried with the DeFeo girl. The priest comes to bless the house, and the holy water sizzles when it hits the walls, despite the fact that the movie is set in late autumn, and he is attacked by a hoard of flies. Refrigerator magnets rearrange themselves to spell "Katchem and Kill 'Em". On a dare, the baby sitter enters the closet where the DeFeo girl was shot, and the DeFeo girl appears to her. The closet door locks itself, the walls begin to bleed and the ghostly appearance makes the baby sitter put her finger in the bullet hole in her head. The baby sitter is taken to the emergency room, severely traumatized. After several other paranormal events, Kathy decides to research the history of her home in the library's public records. After searching for many hours, she finds records of an arrest of a mysterious cult preacher "Father Katchem" who tortured and killed Native Americans in the basement of his sanctuary. Upon encountering a picture of the sanctuary, she realizes that this is her house. One is led to believe that the evil spirit of "Father Katchem" possessed George Lutz as a scene appears flashing between Kathy at the library and George chopping away at the basement wall. He climbs into the space behind the wall and sees numerous bodies murdered in grotesque ways and he sees "Father Katchem". Kathy rushes home, where George appears to definitely be possessed. After a game of cat and mouse, where they are nearly killed, Kathy and her children knock George out and escape with him on their boat. When they are away from the house, he is fine again.

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