A 1995 flashback shows Henry and his partner (Jodie Graham) about to arrest a young couple that have stolen a car. Henry knows Shawn is in there together with his girlfriend (Natasha Peck) and takes both into custody to teach Shawn a lesson. All it does is create more tension between father and son, however.
Shawn's mother Madeleine is back in town to conduct psych evaluations for the police department, and the way she and Henry easily fall back into old habits has Shawn out of sorts. Unfortunately Gus can't offer moral support, because he has his own trouble at work. His supervisor, Frankjim Ogletree (Todd Stashwick), found out Gus has been moonlighting at the Psych agency, which not only is against the rules of the exclusivity contract he has with Central Coast Pharmaceuticals, it also has been eating into company time. Ogletree gives him an ultimatum. He either quits the Psych agency or he's fired.
Gus shows up for work the next day to find Shawn mingling with his co-workers and eating the hand-rolled pappardelle made by Bianca (Debbie Timuss), the VP's secretary. As Shawn tries to convince him to stay with Psych, Bianca summons Gus to the office of Paul Haversham (Christopher McDonald), her boss. Gus thinks he is once again getting in trouble for his extra-curricular activities, but Haversham has heard the buzz about Gus' other job and actually wants to hire him for a job. His wife Elaine is convinced their house is haunted, and while he's a skeptic, she's moved out of the house until the phenomena have stopped. He needs Psych to clear out the ghost, so his wife will move back in.
That night Gus is supposed to meet Shawn at Haversham's house, but Shawn's beaten him there and is already making himself comfortable. Haversham arrives and lets them into his home office, the epicenter of the paranormal activity. Shawn flips through a family photo album, full of pictures of Haversham, his wife and his grandmother, as he asks Gus about his boss' enemies. Gus balks, saying Haversham is a great guy, who runs the company so well he personally revamped their entire inventory system. As Shawn takes that in, Haversham's dog starts violently barking at an invisible force for no reason at all.
At the police station, Madeleine's first assignment is to interview Lassiter, who has been even more gung-ho than usual lately. Lassiter, however, treats the sessions like a game of wits he intends to win. Madeleine eventually figures him out and finds a way in, getting him to open up about his divorce.
Back at Haversham's, Shawn and Gus want to check out the basement, but he tells them the door is bolted shut because they found mold spores down there. Shawn opts instead for some homemade hot chocolate he smells in the kitchen, when out the window he spots the ghost of an old woman in a white dress crossing the property. Shawn, Gus and Haversham give chase but when they catch up with her, all that's left of the ghost is her dress. The next day, Shawn tries to get into the forbidden basement through a window, but the only thing he's able to see is boxes of pharmaceutical supplies before they are interrupted by housekeeper Hadewych (Balinder Johal), who becomes frightened when smoke starts coming out of Shawn's mouth. That's not the only weird thing she's seen at the house, however. After Haversham's wife left, she started hearing eerie female voices coming from the top floor.
Shawn has to take a break from his investigation to have dinner with Henry and Madeleine, where he dresses his father down for putting on airs to impress his mother. He had his chance and he blew it, so leave her alone, Shawn tells him as he leaves. Meanwhile, Gus is still with Haversham when they start receiving strange phone calls, ones which appear to be coming from inside the house. Alone and needing to impress his boss, Gus puts his fears aside and tracks down the origin of the calls, only to discover who has been the source of the 'haunting' all along -- Shawn. Gus is furious, but Shawn insists he only did it so Haversham would continue to let Gus work at Psych. Shawn runs down how he managed to pull off all of the 'paranormal activity' they've been seeing, but all Gus wants to know is, if Shawn's responsible, how are the supposed to solve the case?
The next day, Shawn and Gus go to see Haversham at his office, and Shawn explains away the phenomena by saying the ghost just up and left. Unfortunately, Haversham believes he has figured out the ruse and threatens to fire Gus. As Shawn shakes Haversham's hand on the way out, he gets a vibe, starts to tremble and asks to speak with him alone. Shawn tells him that he has discovered many dark secrets in the house: he knows Haversham was raised by his deceased grandmother, who believed in the sanctity of marriage, and she is not happy he's been having an affair with his secretary. But even worse, she wouldn't want him going to jail, as he's been repackaging and reselling samples from the company. Haversham not only lets Gus work both jobs, he gives Gus a raise and tells Ogletree to leave him alone.
Back at the police station, Lassiter is so comfortable with Madeleine, he opens up to her completely, only to be horrified when he realizes he has been telling his innermost thoughts to Shawn's mother. Shawn arrives to pick up Madeleine, who finally asks him why he is so hard on Henry. Shawn tells her he's still angry at his father for leaving her, but she breaks down and confesses that it was in fact she who left Henry, causing Shawn to look at his father in a whole new light.
- This is the only episode that starts with a flashback featuring a teenage Shawn instead of Young Shawn.
- Gus says the people at his office call Ogletree "Little Pinochet." Pinochet was the former dictator of Chile.
- When Shawn mentions he visited Alice Bundy in prison, he's referring to the girl arrested at the end of the Season 1 episode Scary Sherry: Bianca's Toast .
- Haversham says that he heard a voice say "Gus" right before the phone line cut off. But in the scene being discussed, Shawn says nothing before hanging up.
Gus: This is just... something I do on the side. A hobby, really. Like collecting thimbles, or raising carrier pigeons.
Ogletree: You raise carrier pigeons?
Gus: No, not at all, that's totally lame. I just said that because I was flustered.
Ogletree: I raise carrier pigeons.
Gus: I'm glad you said that, because I was afraid to tell you how cool I thought carrier pigeons are. Flying around and carrying stuff. Coming back. Awesome, I hear that.
Lassiter: Well, let me just go on record as saying that I would never shoot a cat.
Chief Vick: I guess I could find some solace in that.
Lassiter: Unless it was approaching in a threatening manner... or refused to stop upon my command. I would probably just fire a warning shot to make my point, but that's really a field decision. I can't commit to it at this juncture.
Gus [forcibly removing Shawn from his office]: Don't you dare go boneless on me, Shawn!
Haversham: Have a seat.
Gus [pointing to a picture]: Is that your wife?
Haversham: My grandmother.
Gus: Tell her I said she's lovely.
Haversham: She died.
Gus: I'm going to sit down now.
Haversham: Please don't touch anything.
Shawn: I'm sorry Mr. Haversham, but I'm afraid I'm going to have to touch absolutely everything.
Shawn: You're killing all of my jujubes.
Haversham [hesitates in exasperation]: Jujubes are candies.
Henry: Shawn, I order a braised quail salad and all of a sudden you think I'm putting on airs?
Waiter: Excuse me. Who here has the guinea hen crostone with the liver pancetta?
The gallery for Ghosts can be found here.