John Watson (Martin Freeman), an ex-army doctor injured in Afghanistan, meets Sherlock Holmes (Benedict Cumberbatch) through a mutual friend. They become flatmates, sharing rooms at 221B Baker Street owned by landlady Mrs. Hudson (Una Stubbs).
There have been a strange series of deaths, supposed by Detective Inspector Lestrade (Rupert Graves) to be "serial suicides". Sherlock looks at the latest crime scene, which is of a woman in pink, whose name is Jennifer Wilson. Sherlock deduces Wilson is a serial adulterer with an unhappy marriage. Unlike other victims, she left a note, clawing "Rache" into the floor. Sherlock ignores forensic expert, Anderson's, suggestion it's German for "revenge" and settles on "Rachel", deeming the victim died before finishing the scrawl. Sherlock finds splashes of mud on her leg, thrown up by the wheel of a suitcase, and deduces she's from out of town. The police found no suitcase with the body, but Sherlock searches for it, later finding it in a nearby skip.
Meanwhile, John receives a call from a telephone box and is taken to an empty warehouse. There, he meets a man who claims to be Sherlock's "arch-enemy". The man offers money in return for updates on Sherlock's activities, but John refuses. When John returns to 221B, Sherlock asks him to send a text message to Wilson's phone, hoping the murderer will see it and make a move. While waiting at a local restaurant, Sherlock notices a cab and gives chase, using his extensive knowledge of London's streets and alleys to outpace it on foot. However, when he and John catch up with the cab, they find the passenger is a newly arrived American: a perfect alibi.
Believing Sherlock withheld evidence, Lestrade executes a fake drugs bust on his flat. Sherlock presumes "Rachel" was the victim's e-mail address password and the victim planted her phone on the killer so he could be traced by GPS. At the same time John finds the signal's coming from 221B, Mrs. Hudson tells Sherlock a taxi is waiting for him. Sherlock enters the cab. The cabbie (Phil Davis) confesses, but proclaims he doesn't kill; instead, he speaks to his victims and they kill themselves. He challenges Sherlock to solve his puzzle. They arrive at a school building, and the cabbie pulls out a gun and two bottles, each containing an identical pill. The cabbie says one of the pills is harmless, the other poison; he invites his victims to choose one, promising he will swallow the other — and he will simply shoot them if they refuse. Sherlock deduces the cabbie is dying from a brain aneurysm, but that is not the only reason he is killing people.
The cabbie admits a "fan" of Sherlock's contacted him and offered to "sponsor" his work, paying money for each murder, to be left to the cabbie's children. Sherlock realises the gun is actually a novelty cigarette lighter and walks off. However, the cabbie challenges him to choose a pill and see if he can solve the puzzle. Meanwhile, John traced the GPS signal from the phone and followed Sherlock. Through a window in the adjacent building, John sees Sherlock about to take one of the pills, and shoots the cabbie. Sherlock questions the dying cabbie, first about whether he got the pill game right, and then about the identity of his "fan", the cabbie's sponsor. Finally, the cabbie reveals a name: "Moriarty".
The police arrive later and Sherlock starts deducing the shooter's identity, before realising it's John. Sherlock feigns shock to cover for John, telling Lestrade to ignore everything he said. Sherlock and John leave the scene but run into the man who had abducted John earlier, who turns out to be Sherlock's elder brother, Mycroft (Mark Gatiss); John now understands Mycroft tried to bribe him out of concern for Sherlock. Mycroft instructs his secretary Anthea (Lisa McAllister) to increase their surveillance status.
