Anna (Emily Browning) has been in a psychiatric institution for ten months, following her suicide attempt after her terminally ill mother died in a boathouse fire. Upon her discharge, she has no memory of the event but frequently suffers related nightmares. While packing, Anna is startled by a disturbing, talkative patient from the room across the hall. Shortly after, she leaves with her father, Steven (David Strathairn), a writer who has dedicated his latest book to Anna and her sister.
At home, Anna reunites with her sister, Alex (Arielle Kebbel), with whom she is very close. The sisters stand against Steven’s girlfriend Rachel (Elizabeth Banks), who had been their mother’s live-in nurse. Alex criticizes Steven for sleeping with Rachel while the girls’ mother was still alive and sick in bed but he does not respond. Anna describes to Alex how scenes from her dreams have started happening while she is awake. The sisters become convinced that the hallucinations are messages from their mother, telling them that she was murdered by Rachel.
Anna catches up with her old boyfriend, Matt (Jesse Moss), who tells her that he saw what happened the night of the fire. They secretly planned to meet that night, but Matt fails to show up and Anna returns home. In her room, Anna awakens to find him climbing into her window, saying that she needs to know the truth and that he had a warning from her mother. They kiss but then Anna notices Matt’s body suddenly warping and his back breaking. Anna flees from the room in fear but when she opens the door, he is gone. The next morning, Matt’s dead body is pulled out of the water, his back broken just the way Anna saw it. The police assume he fell and drowned.
The sisters are unable to find a record of Rachel with the State Nursing Association and conclude she is actually Mildred Kemp, a nanny who killed the three children she looked after because she had an obsession with their widowed father. They try to warn their father, but he ignores their concerns and leaves for work. The girls try to gather evidence against Rachel to show the police but Rachel catches them and sedates Alex. Anna escapes and goes to the local police station, but they do not believe her claims and call Rachel, who sedates Anna and takes her home.