At the start of the story, we learn that Allison has received an ominous and worrisome email from her best friend, Shane, who still lives in her old home town of Redwater, a small little tourist town up in the mountains. He lives and helps work part-time within the Lakeview Psychiatric Institute, where he has lived almost his entire life, having a strange history and mental maladies himself. Now, it seems the other patients, including him, are becoming agitated or uncomfortable. Nervous. Over what, he’s not sure, but he would like to see Allison this weekend and get out of there for a while. Worried, Allison leaves for Redwater immediately, despite the evening hour.
Gameplay starts just after Allison’s car stalls on the way to the motel she stays at during her visits to Redwater. After reaching it on foot, and eventually reaching the town of Redwater, she and Shane soon discover that the town they thought they knew has been changed into some sort of dark, foggy ghost town. Creatures impossible to reality now stalk the streets, and as Allison and Shane investigate further, a terrifying truth dawns on them: these creatures seem to stem from the very minds of the remaining inhabitants of the town, and the town itself slowly seems to be shifting into some sort of shared nightmare.
With little to go on but the cryptic riddles of an escaped LPI patient and the words of a demon-eyed man of unknown origin, Allison and Shane are forced to explore the town in search of answers with the help of newfound allies discovered along the way. As they progress, more will be revealed about the truth behind many of the ominous myths of Redwater, the characters now trapped there, and perhaps even of reality itself.