Shawn and Gus board a ferry bound for the Channel Islands. They're volunteering (though Shawn doesn't know it at first) for environmental clean-up, along with other nature lovers and a group of four prisoners on work detail. After Gus gets seasick, he and Shawn take a wrong turn, then run into Craig, the prison guard, who has been tied up and gagged. Craig tells them that the prisoners he was guarding escaped and are loose on the ferry. Shawn calls Henry and tells him the news. Craig, Gus, and Shawn find themselves in a standoff with the prisoners, who are demanding to be let go on the life raft. Dane Northcutt, one of the prisoners, then ups the stakes - if they are not able to safely escape the ferry, then they will start shooting hostages. SBPD surrounds the ferry and assesses the massive hostage situation they now have on their hands. A tense countdown ensues, and just as we think Northcutt has carried out his threat and shot two innocent hostages, tear gas is launched onto the boat. SBPD storms the ferry, apprehends the inmates and rushes the injured hostages to safety. But Shawn then swiftly points out that the injured 'hostages' they took were actually inmates in disguise. So now they have two prisoners on the loose, one of which is Northcutt.
Back at SBPD, Craig has been fired and that Shawn believes there was a third accomplice, in addition to the two escaped prisoners. Shawn remembers a tattoo on one of the inmates - Tres Diablos - which they learn is a gang run by Northcutt's former cellmate, Percy Dunn - but Craig tells them that Percy has actually been dead for 2 years. They then realize it wasn't Percy they need to talk to, but rather Percy's mother - Lorraine Dunn. She's been in regular contact with Northcutt since his death, and they learn that Northcutt had paid Lorraine a visit earlier that day. They ask to see something in her late son's room. Shawn searches the room and discovers that Northcutt had taken a hidden key. They investigate further and discover that Percy hid a stash of money for Northcutt to find once he broke out of prison (which was what the key was for.) Shawn then gets a clue to go visit Northcutt's girlfriend and son.
During his visit, Shawn figures out the money was supposed to go to Northcutt's son, and that Northcutt had been trying to find an old church. Shawn then realizes that's where the money is hidden. At the church, the team looks for the money. The team finds Northcutt there with the money, and is thankfully able to take him, along with his accomplice, down. But in a stunning turn of events, Craig points a gun on Shawn, Gus and the two inmates. Craig, distraught from losing his job, wants the money for himself. So he steals it from the inmates and makes an escape in the Blueberry. He is stopped shortly by Shawn and Gus. They plead with Craig not to take the money, and try to appeal to him on his level. Craig points the gun at Shawn and Gus and shoots - but Shawn and Gus aren't hit - Craig ends up shooting and injuring an approaching Northcutt and his partner, Sanfus Sanders.
Back at SBPD, Shawn and Gus lie on Craig's behalf in order to get his job back. And as a result, Craig is given a reward for returning the stolen money. Shawn and Gus fully expect to get a little monetary pat on the back for not telling on Craig to the chief, but Craig decides to keep the money for himself as he heads off into the sunset.
A variation on the more standard 'fairy tale', given the aquatic setting, is used for the title.