The Doctor and Alistair must flee for their lives when Alistair inadvertently insults an angry tribal god-king whose enchanted spear was in fact a slimline maser cannon. Due to the speed of their departure, the Doctor cannot be sure where they've ended up, but the war-torn city in which the TARDIS materialises seems oddly familiar... and he finds out why when he and Alistair are confronted by a Dalek patrol and threatened with extermination for breaking curfew. At the last moment, a female Thal named Gillen arrives and identifies them as her friends from Kelto province; not every Thal from that sector has been registered, and some have come to the city looking for safety. The Daleks reprimand Gillen for breaking curfew and punish her with a 12-day reduction in rations, but allow the newcomers to accompany her after assigning them temporary identification numbers and ordering them to report for full registration tomorrow. Now the Doctor knows where he is: the planet Skaro.

The Doctor and Alistair prudently accompany Gillen to her home without protesting, and once they arrive, a young woman named Nadel overpowers and searches them. Gillen decides that the newcomers are harmless, and admits that she wasn't breaking curfew for their sakes, but to move weapons out of a disused building in the North Quarter of the city. She claims that she saved the newcomers' lives simply because it was the right thing to do, but considering that she's already given away quite a lot more than she probably intended to, Alistair deduces that she really saved them because she's desperate for help. He's encountered Daleks before, back in 1972; three Daleks killed 47 of his men, which was later cited as evidence of his incompetence. The Doctor claims to have participated in the Great Siege that resulted in the deaths of all Daleks remaining on Skaro, and Gillen and Nadel explain that more Daleks later returned to the planet from off-world and conquered the unprepared Thals. The Doctor promises to help them overthrow the Daleks once again.

Outside, two Thals named Toloc and Delt are caught breaking curfew, and Delt is exterminated when he panics and tries to flee. Toloc claims to be a stranger who just happened to see Delt out on the street and broke curfew to help him; the Daleks then receive word of an incident elsewhere in the city, and let Toloc go with a warning and a 10-day ration reduction.

The next morning, the Black Dalek makes its daily news and propaganda broadcast, insisting that the Thals' future lies in accepting Dalek rule. The Doctor watches with fascination as the broadcast moves on to a recreation of historical footage in which Davros, the near-mythical creator of the Daleks, educates his creations on their nature as creatures of war. Nadel explains that Davros apparently vanished on a spiritual quest; some Daleks left the planet in search of him, and some presumably renounced their quest, which is why the Doctor has never heard of Davros before. This may mean that the Daleks who have returned to Skaro have a different psychology than the other Daleks that the Doctor has encountered. As further evidence of this, Nadel has the Thal equivalent of bipolar disorder, and yet rather than exterminate her, the Daleks have allowed her to live under Gillen's care until a cure can be found.

The Doctor and Alistair spend the day undergoing tests and registration procedures; meanwhile, Gillen meets with Toloc, who tells her that Delt is dead. Since Delt was the resistance's best bio-programmer, his work is now useless, and Toloc suggests giving it to the Doctor to see what he can make of it. The Doctor quickly works out that Delt was trying to work around the Daleks' artificial neural limitations and effectively reprogram their brains. It would be impossible to turn a Dalek into a spy or saboteur without changing it so much that the other Daleks would immediately recognise the difference, but the Doctor comes up with an alternative plan. As he works, the barrage of Dalek propaganda and historical recreations continues, conveying the messages that the Thals are an inferior species and that the Daleks were all created equal to each other in order to prevent power struggles within their range.

The Black Dalek receives word that the challenge they have been expecting is imminent, and thus orders that the incubation program be accelerated. 300 Thals are chosen for the program, and Nadel is one of them. A Dalek arrives at Gillen's home and orders Nadel to come with it, and she obeys, warning the Doctor and Alistair not to cause trouble. They have little choice but to let her go, and when Gillen learns what's happened, she is furious and even accuses them of betraying the resistance. However, the Black Dalek then makes a public announcement, revealing that the Thals classified as inferior are being taken to the incubation chambers, to be transformed into Daleks that will swell the ranks of the Dalek army. Gillen vows to put the Doctor's plan into effect immediately, and Alistair volunteers to help capture a Dalek. The Thals, still inexperienced in the art of war, gratefully accept his help.

After curfew, Alistair and the Thals lure a patrol of three Daleks into a trap. The Daleks respond more quickly than anticipated, and although the Thals destroy one and damage another, the Daleks kill the Thal snipers and capture Alistair. Assuming this to be another futile gesture from the resistance, the Daleks believe Alistair when he gives up the location of his co-conspirators. The damaged Dalek remains to guard Alistair while the fully functional one goes to capture the others, but when it arrives at the destination that Alistair had given, Toloc lures it into the range of a power neutraliser that the Doctor has developed. The Doctor and the Thals pry the top off the casing, stun the creature inside and disable its distress beacon, and then take the Dalek to a secondary base before its reinforcements arrive. Unfortunately, Alistair remains a prisoner of the Daleks, who send him to their own city via train to become part of the incubation program.

The Doctor works through the night as the Black Dalek steps up its propaganda broadcasts, insisting that rebellion is against the Thals' best interests. In another historical re-enactment, Davros explains that the Daleks were born out of war; the imperialistic Thals attracted the attention of a hostile space power and conscripted Kaleds to fight for them, and it was in this war that Davros became crippled. This is why the resentful Kaleds turned on the Thals, and how the Daleks came to be. Morning dawns, and the Doctor finishes reprogramming the captured Dalek -- which, when reactivated, believes itself to be Davros. The delusional Dalek returns to the hub of the Thal city and demands to be placed in command of all Dalek forces, and when its superior hesitates, the impatient Dalek exterminates it and makes the announcement itself. The Black Dalek responds that the reprogrammed Dalek is delusional, but the reprogrammed Dalek insists that it is Davros and that the Black Dalek's role is now redundant. As the Doctor had hoped, confusion spreads throughout the Dalek ranks, as some accept the word of the dissident while others remain loyal to the Black Dalek. Soon, civil war has broken out between the factions, and once the situation is confused enough, the Thals begin acquiring weapons from the Daleks that have exterminated each other.

But as the Thals begin fighting to take back their city, an alien spacecraft passes overhead, heading straight for the Dalek city. The Black Dalek, realising that this is the attack they were expecting, makes a broadcast calling for an end to hostilities in the face of a common enemy -- and the Doctor becomes worried when he realises that the Black Dalek really means it. The resistance captures a Dalek and bring it to Gillen's home for interrogation, where the Doctor takes a little too much satisfaction in revealing how he started the civil war; however, the Dalek claims that he's made a terrible mistake. While searching for Davros, a survey team of the Daleks encountered a hostile race of extra-dimensional entities called the Quatch, who tortured all but one of their prisoners to death. The survivor escaped and warned the other Daleks that the Quatch intended to invade Skaro, and the Daleks returned to offer the Thals protection -- whether they wanted it or not. They remained wary of the Thals even while offering to protect them, however; the Thals have traditionally been a warrior race, and the Daleks had no reason to believe that they'd changed their ways, especially as they'd gone on to wipe out the last surviving Daleks on Skaro. Whoever's to blame for the situation they now find themselves in, however, the Quatch are here at last, and the Daleks have been caught unprepared...

Davros has Alistair and Nadel sent to a holding cell until he can decide what to do with his them. The Quatch seize control of the Dalek city hub, and Davros reveals to the captive Black Dalek that he left Skaro because he was disappointed in his creations. The fact that they have been protecting lesser species such as the Thals and fighting amongst themselves only confirms that he was right. He went willingly when the Quatch invited him to help augment their own technology, as he saw far more potential in them than his own Daleks. He now orders the Black Dalek to deliver an ultimatum to the others: either they allow Davros to reprogram them into servants of the Quatch Empire, or they will be exterminated. New divisions occur within the Dalek ranks after the ultimatum is delivered, and in the course of the fighting, Daleks who have rejected the Quatch's ultimatum help Alistair and Nadel to escape back to the Thal city. The Quatch seal the train tunnel behind them, but don't bother to pursue them, confident that any escaping prisoners will be killed when the Quatch conquer the Thal city. As the Quatch prepare for the attack, Davros begins to process the Daleks who have accepted his ultimatum, starting with the Black Dalek itself.

In the Thal city, the captive Dalek explains that the Daleks that were created without pity or compassion turned on Davros and went off in their own direction; the Daleks who remained loyal to him retained these emotions, which is why they felt pity for the Thals and returned to Skaro to help them. They did not tell the Thals the whole truth for fear that their mortal enemies would try to form an alliance with the Quatch against the Daleks. Its claims are confirmed when the Quatch themselves contact the Thals, threatening to depopulate the planet by force if they do not surrender. The Doctor still believes that it was right to overthrow the Dalek occupation, but acknowledges that the species now have a common enemy -- one that they must fight on equal terms, whether the Daleks like it or not. He begins by revealing the truth to the Dalek that he had reprogrammed; it is unable to accept that it is not the real Davros, and the Doctor has Gillen stun it and undoes his programming, admitting that he feels guilty about what he's done and wants to restore the Dalek's free will.

The Doctor, Gillen, and the captive who had told them about the Quatch then make a public broadcast in which Gillen returns the Dalek's gun-stick of her own free will. This shows that the Thals can be trusted, and the Daleks somewhat reluctantly agree to put aside their differences and fight alongside the Thals on equal terms. Alistair and Nadel then arrive with the Daleks who had rejected the Quatch ultimatum, and they also agree to work alongside the Thals. Nadel suggests that the Doctor and Alistair take joint charge of the situation, and the Daleks reluctantly concede that this may confuse the Quatch, who are familiar only with Dalek strategies. Alistair decides to lead from the front while the Doctor co-ordinates the battle from the Thal city, and at the last moment, Nadel decides to accompany Alistair. The Thals also send the bullet train back to the Dalek city, even though they're aware that the Quatch have blocked off the terminal.

Three Quatch strike ships attack the Thal city, and engage in battle with two Dalek saucers. Two of the attackers concentrate their fire on one of the Dalek saucers, but to the Quatch's surprise, the second saucer turns on the third strike ship rather than defend its fellow. Once the Quatch ship has been brought down, the Doctor orders the Daleks to rescue any survivors from the first saucer, but they refuse, claiming that the capture of prisoners for interrogation is of higher priority. Although they succeed in capturing a Quatch, Gillen notes that the Daleks don't work well with others, which doesn't bode well for their alliance with the Thals. The Doctor places her in command while he examines the prisoner, but he is disgusted to find that the Daleks have trapped it in a containment device that doubles as an instrument of torture. He refuses to permit the torture of prisoners, and after a moment's hesitation, Toloc decides to support him. When the Daleks protest, the Doctor decides to get the information he needs quickly and painlessly, and using Dalek technology, just to prove a point.

Meanwhile, Alistair and Nadel are aboard a third saucer, which is taking an indirect path to the Dalek city under cover of the battle. By the time the Quatch realise that the approaching bullet train is packed with high explosives instead of passengers, it's too late; the train hits the barrier, and the explosion causes serious damage to the Dalek city hub. As the Quatch scramble to recover, the third saucer -- and instead of attacking the Quatch, the Daleks reclaim more saucers for themselves. Sending three dozen troops into the heart of enemy territory would never have occurred to the Daleks, but Alistair is human and has never been able to shake off the idea of heroism; and since the Quatch based their strategies on what they knew of the Daleks, they never saw this coming. The Quatch recall their strike ships from the Thal city, but the two ships are now outnumbered and the Daleks are able to destroy them with minimal casualties. Despite himself, Davros is impressed, but he continues his work and successfully conditions the Black Dalek to serve the Quatch Empire without hesitation. Meanwhile, the Quatch analyse the tactics used in the battle and incorporate the data into new strategies. This was the true purpose of the preliminary attack: to gather enough information to ensure that the second attack would succeed.

The Dalek saucers return to the Thal city, where Alistair finds the Doctor questioning his prisoner with a truth serum created using Dalek technology. The prisoner reveals that this is not the first time the Quatch have tried to invade Skaro; the war that the Thals know as the Invisible Assault, the war in which Davros was crippled fighting an alien enemy that he never saw, was a war against the Quatch. The Quatch attacked Skaro to gain the power of a pocket dimension locked in the heart of the planet; when their frontal assault failed, they moved to eliminate the native threat by provoking a war between the Thals and the resentful Kaleds who had been conscripted to fight on their behalf. The Quatch surreptitiously provided the Kaleds with technology that put them on an even footing with the more militaristic Thals, and brought Davros over to their side to prevent his Daleks from becoming too much of a threat. But Davros still doesn't know that the Quatch are the enemy who first crippled him. Alistair and the Doctor decide to break into the Quatch mothership, find Davros and tell him the truth.

The Daleks decide to attack the mothership as a distraction, and Toloc volunteers to accompany them; he knows that it will likely be a suicide mission, but he doesn't want the Thals to be in debt to the Daleks. As the two saucers head for the Dalek city, the Quatch launch a second assault on the Thals, confident of victory within three waves; their subordinate Daleks will not be needed for this war, but will be used in the future. The Quatch strike ships successfully breach the Thal city's primary defences, and Gillen, realising that they're doomed, decides to surrender and hope that the Doctor's plan succeeds. The Daleks are unwilling to do so at first, and even threaten to exterminate Gillen herself if she surrenders; however, she claims that this is only because they know nothing but war, and they reluctantly agree to "pretend" to surrender as a strategy.

The decoy saucer attacks the Quatch mothership, and as the Quatch try to puzzle out the illogical suicide attack, the Doctor's saucer surreptitiously docks on the other side and the Daleks cut their way on board. The other saucer suffers heavy damage, and Toloc convinces the Daleks to go out by crashing into the mothership's control centre. The Doctor is upset by the loss of life, but Alistair points out that the saucer would have been destroyed anyway while retreating; this way, the Quatch have been confused by an illogical strategy, and their weapons have been disabled, giving the Doctor and Alistair a chance to escape.

The Daleks fight their way through to Davros's laboratory, destroying the Quatch and severely damaging the Black Dalek. The Doctor decides to speak with Davros himself, as the Daleks have too much history with their creator to do this dispassionately. While Alistair and the Daleks hold the corridor, the Doctor speaks to Davros, who admits that he was never able to create Daleks who lived up to his high ideals. The Doctor tells Davros the truth about the Quatch and provides him with evidence downloaded from the Quatch prisoner in the Thal city. Unable to deny what he's seeing, Davros begins to laugh, and confirms the Doctor's suspicion that he's already prepared for a possible betrayal. The Doctor has already seen severely injured Quatch wink out of existence; this is because they're from another dimension, and require technological implants to remain stable in this Universe. Davros designed the current version of the stabiliser, but the Quatch don't know that he installed a remote shut-down switch that can only be activated by Davros himself.

The mass instability caused when all of the Quatch destabilise at once will probably destroy the mothership, but Davros, appreciating the irony of his situation, agrees to give the Doctor a few minutes to escape before he activates the procedure. As the Doctor, Alistair, and the Daleks retreat back to their saucer, Davros apologises to the Black Dalek for giving up on his creations, and the Black Dalek apologises to Davros for failing him. Davros concludes that those with high ideals are doomed never to live up to them, and presses the button, amused by the irony that it's just him and his Daleks against the rest of the Universe at the end of it all -- although the circumstances are nothing like he could have imagined. As Davros has predicted, the mass instability when the Quatch phase out of existence destroys the mothership as well, but the Doctor and his allies escape moments before the ship explodes behind them.