Chief Vick calls Shawn and Gus down to the station after a handful of old convictions get overturned. They have to reopen the all the investigations and need Shawn's help on one in particular - Eugene Franks, who was caught with explosives meant to bomb police headquarters. It was the biggest case of Henry's career but Vick stresses that he can in no way be involved in the investigation. Henry's no longer on the force and could compromise any new evidence they find. But by the time Shawn and Gus get back to the Psych office, Henry is there waiting for them and wants in. Shawn refuses. As Henry leaves, he stresses that he knows he got the right guy and stopping him saved a lot of lives.
Shawn and Gus need to learn more about the case, so they go to the D.A.'s office where Henry is once again already there waiting. They ask the clerk for transcripts of Eugene's original trial, and when he leaves to make them a copy, Shawn tells Henry can tag along on their investigation but he needs to stay out if sight and more importantly, Shawn is in charge. Henry agrees. When they get the transcripts, Shawn sees that the D.A. admitted only one piece of evidence. Henry tells them the case was so strong, they didn't need to use all of it. A different, unquestioned warrant was used to obtain the evidence that wasn't used and is still in the county archives. They need a look at that evidence, but Gus refuses to drive as his boss is now checking his mileage and Henry's truck can't be spotted anywhere near the investigation. So they cab it to the archives where they find a pawn ticket dated a few days before Eugene's arrest. Gus knows the shop. It's still open. Henry suggests they go check and see if Eugene ever had a chance to buy the item back.
At the pawnshop, they learn that Eugene pawned the title to his car, which was then resold. But they find the VIN number, which they can use to track where the car ended up. Unfortunately, that could take them all over the city, which would expose Gus' and Henry's involvement in the case. Shawn looks around the shop and gets an idea - they will disguise themselves in vintage 70s clothes. They track the car to a salvage yard but the worker won't let them search the car unless they buy it. After they give him all the money they have on them, most of it being Gus', Shawn spots a faded outline of an old window sticker and Henry notices new soldering under a floor mat where a smuggler's hatch was installed. Inside they find a roll of film, and after they get it developed, they see a picture of Eugene with a man and a woman they've never seen before, all three wearing berets and holding guns. Henry remembers one of his old snitches, Pookie, who knew everyone back then. Chances are he'll be able to ID them.
Driving Gus' "new" car, they track down Pookie at, of course, a 70s themed dance club, who remembers the couple as Derek and Melanie, part of a group called S.A.G. - Soldiers Against Government. It seems Eugene had partners in his plan to blow up the station and never ratted them out because he was scared of them. Henry is stunned. He always thought Eugene was acting alone. His biggest bust and he was wrong.
Still driving their vintage wheels, they track down Melanie and Derek to a suburban neighborhood but they bolt when the see Eugene's old car. After our guys chase them down, they say they recognized the car and thought Eugene was coming after them for revenge. Eugene always thought they set him up for the bombing. They know he's been asking around about them, trying to find them. They tell them that after Eugene was arrested they stopped their radical ways. They were essentially brainwashed back then. When Gus asks if they know anyone else who might want to set Eugene up, Melanie nervously cuts her finger. Shawn then spots among their mail an alumni letter with the same logo he saw on the sticker on the car.
Since it seems they all knew each other at school, our guys leave and head for the university to find the last S.A.G. member, the one not in the picture, the one that was holding the camera. Henry says that person was probably a mentor. They find out the one professor they shared together was a Dr. Colbert but when they track him down in his lab, they find him murdered. Eugene must have gotten there first. The cops arrive and Shawn tells them it was Colbert who masterminded the bomb plot years ago and set Eugene up for the fall. Henry notices the same chemicals he found when he busted Eugene. Eugene has made another bomb and he's going to use it to take out the remaining members of S.A.G. They race back to Derek and Melanie's house where they find Eugene lurking in the back yard and a bag of explosives under the house. But Eugene claims he's never seen the bag before and that he got a call from Derek and Melanie telling him they finally wanted to come clean about everything. Shawn then notices that Melanie's cut has miraculously disappeared and realizes she tricked them into thinking she was scared of Eugene to throw them off the truth. She and Derek set Eugene up because they wanted out of S.A.G. With Eugene released, they were prepared to kill to protect the their new life - first Colbert, then Eugene, when he died in the explosion they were planning at their house. Derek and Melanie deny it, saying Shawn has no proof. Shawn then activates the bomb to lure out the real culprit, who will be the only one able to defuse it. With seconds left, Derek steps forward and deactivates it, proving Shawn right and once again closing the book on Henry's biggest case, this time for good.
- Along with the 'die - murdered' contrast, the title may also be drawing on the lines from 1999 superhero comedy film Mystery Men, in which Casanova Frankenstein (Geoffrey Rush) and Tony P. (played by Eddie Izzard) discuss the fate of the genre.
- CF: It must have been hard for you, the way times and styles have changed...
- ...to hear the people saying that disco is dead.
- TP: Disco is not dead! Disco is life!
- CF: Yes, Tony, that is the passion I remember.
- Being a stickler for the correct language Gus wouldn't have said "VIN number" he would have said the correct term which is vehicle identification number.
- This episode features a flashback of Henry in the beginning, and not Young Shawn.
Shawn: The important thing is that you got your cover story.
Reporter: Actually, it's page 64.
Shawn: Really depends on how you fold it, doesn't it?
Lassiter [talking about being attacked by marmosets]: Lower primate, my ass! I recognize a military formation when I see one!
Lassiter: Spencer, I'd appreciate in the future if you just played with your own life.
Shawn: Oh, come on, Lassie. If Derek hadn't caved, I would have just deactivated it myself. It's very easy. You just clip the red wire and the green wire at the same time.
Juliet: Uh, Shawn? There is no green wire.
Shawn: Really? Huh. Well, in that case, we all would have died.
The gallery for Disco Didn't Die. It Was Murdered! can be found here.