An 11 year-old kid hires Shawn and Gus to retrieve his stolen Darth Vader action figure collectible from the British Ambassador's son's room at their temporary residence in Santa Barbara. Shawn successfully sneaks into the Ambassador's residence during a lavish party the Ambassador is hosting in honor of successfully exonerating Colin, a British student, of murdering his girlfriend Sarah. Shawn successfully retrieves the Darth Vader, but in the process he comes across the body of a dead woman. Before he is able to investigate, he is forced to escape, as his presence is discovered by guards. Shawn quickly escapes, but not before he is spotted and chased. Shawn narrowly escapes, but now he and Gus have a murder to solve.
Meanwhile, over at the SBPD, Lassiter has Juliet strapped up to a lie detector. He knows about her relationship with Shawn and wants her to come clean. Lassiter asks her if she is dating anyone, but Juliet avoids answering and disconnects herself from the device, but Lassiter knows the truth. At that moment, Shawn and Gus come barreling through the SBPD doors. They tell Juliet and Lassiter that Shawn had a vision about a murdered woman under a bed in the house up the hill at a formal gathering. Lassiter doesn't want to hear it, but Juliet maintains that they should follow up on Shawn's vision. Shawn then gives an address – an unusually specific "psychic vision". Juliet is slightly baffled by the precision of this particular psychic prediction, but goes along with it.
Shawn, Gus, Juliet, and Lassiter head to the mansion, where they meet the Ambassador and his Vice Counsel Randa, who have both been in Santa Barbara for the past month lobbying for the release of Colin, the accused British student. Shawn describes the dead body he envisioned – a woman in a sparkly dress and lavish earrings – and with that, the ambassador immediately allows them entry to investigate.
However, when Shawn goes to show them where he psychically "saw" the body, the body is not there. Shawn looks around and sees marks on the ground, and states that he has had a vision that tells him the body was dragged to a different part of the property – the pool area. And sure enough, there she is, floating dead in the water.
In the midst of defending Shawn to Lassiter, Juliet blurts out the truth about her relationship with Shawn, and with that, Lassiter tells her he wants a new partner. But Chief Vick isn't having it. They are to remain partners, whatever their beef is. And thus, Vick remains in the dark about Shawn and Juliet's relationship.
Back at the SBPD, the case is discussed among the team. Vick explains the dead body is Annabeth York, a low-level member of the Ambassador's staff who was pressuring the prosecutor, and was a key component in getting the British student's murder charges dropped. She had, in fact, found a witness to confirm the accused student's alibi.
Henry pulls Shawn aside to warn him that his credibility as a psychic is in jeopardy because his vision was so specific, and that if the SBPD finds out he was at that party, he may get himself into some big trouble. But Shawn stays focused on solving the case and begins to question the Ambassador. Shawn predicts that the Ambassador was so upset by Annabeth's death because he was sleeping with her during the time of her death.
Henry checks up on Shawn's theory and heads to Woody's office to look up the preliminary report on the cause of death. Woody says that she knew her attacker and had been strangled.
Shawn manages to get back into the Ambassador's home to investigate. There, he overhears a conversation that proves the Ambassador didn't kill the girl. In fact, the Ambassador's next step is to hire Shawn to help find the girl's actual killer. And with that, Shawn is granted temporary diplomatic immunity. Shawn searches the bedroom where he found the dead body. There, he flashbacks to what he saw in the closet - shoes, standing in a pigeon-toed position. He remembers seeing a distinct pair of shoes through the opening in the closet that night – only this time, the shoes are not there. The Ambassador informs Shawn that he never keeps shoes in there, and from that, Shawn figures out that the pair of shoes was actually on a human body, and that the killer was likely hiding in the closet right after he murdered the girl. The Ambassador thinks the killer may be the "intruder" from earlier – which unbeknownst to them was actually Shawn.
Shawn quickly squelches the Ambassador's theory about the intruder being the killer, and then realizes that the last car to leave the party belonged to Colin – the student whose murder charges got dropped. Now they think Colin killed the girl. Shawn then leads the team to Colin's host family's house. He meets the Ambassador's public affairs officer, Charles Wignall, who is also part of Colin's host family. Right then Juliet gets a call that they found a fingerprint on the body and they are on their way to make an arrest. The fingerprint belongs to Randa, who we learn didn't kill her, but instead moved the body to protect the Ambassador from accusations of her murder. So now they are back to thinking it was Colin who was the culprit. They find Colin and a chase ensues, which ends with Shawn, Gus, and Colin in jail.
Lassiter informs Shawn that his diplomatic immunity has been revoked, and then presents him with a photo taken at the party - a photo of Shawn. A photo that may very well prove Shawn was there the night of the woman's murder and that he has been lying this whole time. Lassiter wants an explanation, but Shawn vehemently denies it's him in the photo. Lassiter then straps Shawn to the lie detector test. Shawn ends up telling the slight truth – but ends up leaving the stuff about him being at the party out. He then comes clean about his and Juliet's relationship, and admits he loves her - Juliet is pleased to see he is telling the truth about his affections, as the lie detector doesn't skip a beat. Then Lassiter asks him the ultimate question - "Are you psychic?" Shawn is able to pass the lie detector test without revealing the actual truth. He beats it, and Lassiter is shocked. Then something dawns on Shawn, and the last thing Shawn says while hooked up to the polygraph is this: "I know who killed that woman."
They head back to Colin's host family's home. While in the house, Shawn has a vision of a pair of feet walking down the stairs – the feet belong to the student's host, Charles Wignall. This vision quickly causes him to flashback to an image of the same exact pigeon-toed pair of feet he saw in the closet where the girl was left murdered. This must be their guy! Shawn further proves that Charles is the murderer when he exclaims that Charles was the one driving Colin's car home from the party, and that he was the last one to leave. Charles is then arrested, and the case is finally laid to rest.
Back at SBPD, Lassiter straps himself into the polygraph and proceeds to give Shawn a talk about his relationship with Juliet – that if he hurts her in any way, he will have no problem discharging his pistol. Shawn is actually sort of touched by this exchange.
Then, in one last flashback, we see how Shawn was able to pass Lassiter's lie detector test - Henry had a polygraph in the basement and taught Shawn how to "believe the lie." And Shawn has been able to ever since.
- When Shawn is hooked up to the polygraph, one of the questions is if Shawn can seen into the future, to which he answers 'yes'. However, Shawn states in "Gus Walks Into A Bank" that he doesn't see into the future, but just reads the present.
- Shawn attempts a British accent, and the ambassador asks where he gets his accents from. He mentions the grandpa from Phineas and Ferb. Malcom McDowell (the ambassador) voices the character.