Adapted from Abraham Merritt's novel by director Tod Browning, a banker escapes from prison and uses living dolls to get revenge on the three bankers who framed him.
Paul Lavond (Lionel Barrymore) and Marcel (Henry B. Walthall) escape from prison on Devil's Island, and Marcel's wife Malita (Rafaela Ottiano) welcomes them. Marcel shows Paul animals shrunk to one-sixth their size so that more can live on earth. They lose their will and are controlled by thought. After 17 years Paul wants revenge. Marcel reduces the housekeeper Lachna (Grace Ford), but he dies. Malita asks Paul to help, and they go to Paris.
Three bankers fear that Paul Lavond will come back, and they offer a reward. Paul disguised as Madame Mandelip shows bank manager Victor Radin (Arthur Hohl) a toy horse that responds to his commands and asks for a loan. Radin comes to Paul's shop and is immobilized. Paul in disguise goes to see his daughter Lorraine Lavond (Maureen O'Sullivan) at a laundry where she works. She goes out with Toto (Frank Lawton) in his taxi. She hates her father and won't marry. Paul also visits his blind mother (Lucy Beaumont), who knows who he is; but Lorraine says she would turn him in to the police. As Madame Mandelip he sells a doll to the wife of banker Emil Coulvet (Robert Greig). The doll is Lachna, and Paul makes her steal jewelry and drop it from the balcony to him. She climbs Emil's bed and stabs him.
Police come to the shop, and Malita puts the jewelry in a toy. A doctor says that Emil is paralyzed. Banker Charles Matin (Pedro de Cordoba) gets a note with Bible words warning him to confess before dying at ten. Police guard his house, but a doll from the Christmas tree comes alive. Little Radin sneaks upstairs and is about to stab Matin when he confesses he is guilty and that Paul Lavond is innocent.
Malita wants to carry out Marcel's work, but Paul says it is hideous. Malita sends Radin after Paul, but he sees him. Malita blows up the shop. In Toto's taxi Paul tells him who he is. On the Eiffel Tower Paul meets Lorraine and says he is Paul's friend from prison. Lorraine wants Paul's forgiveness. He says Paul is dead and tells her to forget him, get married, and love her children.
This diabolical fantasy enables Paul to get revenge without being caught. Yet now he cannot live freely either, because he has committed new crimes, though his salvaged reputation removes his daughter's shame. The fantasy is diabolical because of the negative human tendency to manipulate other people by making them one's tools.