Somewhere on Gallifrey, away from the eyes of the public, the recently regenerated Romana -- War Queen and Mistress of the Nine Gallifreys -- meets with the notorious Interventionists Cavis and Gandar to inform them that Gallifreyan forecasters have detected the first signs of a forthcoming technological advance which could turn the tide in the Time Lords’ dispute with the People and their first contact with the Enemy. Cavis and Gandar are to “observe” the events leading up to this breakthrough, and nothing is to stand in their way of obtaining this new technology. Not even the Doctor...

On Earth, it is the year 2012, and the Brigadier, though he has his youth back, still has not come to terms with Doris’ death in a boating accident for which he is largely responsible. A session with his psychiatrist Cronin is cut short when he is summoned to Wiltshire Downs, where pilot Matthew Bedser has vanished for 26 seconds during a training exercise and lost a nuclear warhead in the process. All he can remember is that after turning aside to avoid a dragon, he gave the warhead away in a dream. Believing that he is telling the truth but unsure what can be done about it, and seeking closure in a permanent sense, the Brigadier goes to the exact place on the Downs below the spot where Bedser’s plane momentarily vanished. There, he meets Compassion, who has been living an ordinary human life in Bristol for six weeks on the Doctor’s orders, and who is now waiting for the TARDIS to return to her. But another test flight is made over the same area at the very moment that the TARDIS starts to materialize, and time and space twist themselves out of shape -- and the TARDIS, caught in the middle of the anomaly and unable to turn aside in time, explodes...

The Brigadier awakens in the hall of a Celtic castle, where he is reunited with the Doctor -- who is terribly pleased to see him, but less pleased to see a nuclear warhead on the wall. They are attacked by frightened Celtic warriors but saved by the arrival of Mab, Queen Regent of the Kingdom of Avalon. These are the lands of the Catuvelauni, a Celtic tribe who with the help of Gallifreyan Interventionists retreated into the human unconscious to escape Roman invaders. Avalon is given form by the sleeping King Constantine, but it does not exist in any real sense, and the Doctor now realizes to his horror why the TARDIS has been taking him to so many dimensional rifts and alternate realities in recent months -- the event it had sensed in its future, for which it was trying to prepare itself, was the moment of its death. Now he and the Brigadier are stranded in Avalon, and the arrival of a Time Lord and a warrior who shares the name of Brigida, goddess of poetry and war, portends great changes to come to the land of dreams...

Fitz and Compassion find themselves in the chambers of Margwyn, Queen Mab’s most loyal and trusted advisor. Margwyn is interrupted on his way to the High Council by the sight of a servant girl with an aura of magic about her, and when she claims to have seen something odd in the fields outside he investigates -- to find that, as he feared, the dreamfield is weakening. Having encountered Bedser’s plane and confiscated the intruder’s nuclear weapon, he knows the Homelands to be populated by people who have poisoned the air and built brutal killing machines capable of destroying entire cities. Fearing the consequences when the rift inevitably opens and his people make contact with those on the other side, he takes the warhead and convinces Fitz and Compassion to accompany him to the Unseelie Court. There, he speaks with the Fair Folk, Silurians carried along to Avalon by Constantine’s dreaming and given a magical new background and justification for their existence here. It is his hope that the civilised Fair Folk will be better able to handle the dangerous weapon than his own people, and that by putting the Fair Folk in a position of strength he will be able to dissuade the Catuvelauni from making an alliance with the people of the Homelands. But he doesn’t realize that the serving woman who directed him to the rift was in fact Cavis in disguise...

Just as Margwyn had feared, a permanent rift opens between Avalon and Wiltshire Downs, to the surprise of the troops searching the Downs for the missing warhead. The Brigadier orders the soldiers to report the situation to London at once and arrange for diplomatic talks between the British government and Queen Mab’s court. Margwyn’s betrayal has left the Celts at a disadvantage, and only by allying themselves with the armed forces of the United Kingdom can they recoup their position of strength and prevent the Fair Folk from using the warhead as a threat to force the Celts into conceding territory to them. In return, Britain will acquire a strategic advantage, an extra-dimensional bolthole to be used in case of attack and the powers of magic as exercised in the lands of dreaming. But as British “peacekeeping” troops begin to arrive, only the Doctor understands and is willing to say that his strangely distant old friend has made a terrible mistake; by reporting Avalon to the British government instead of the UN, he has made it a resource which the British will fight to keep, and the result could be war in the land of human dreams. All is going according to Cavis and Gandar’s plan...

As the British establish a presence in Avalon, the Doctor and the Brigadier find themselves unable to talk to one another; the Brigadier knows that what he has done is wrong and is unable to face the Doctor, while the Doctor knows that he is taking out on his old friend his frustration about the death of his TARDIS and his uncertainty about Faction Paradox’s meddling with his timestream. The Doctor asks Queen Mab to give him something to do, and she sends him to investigate the disappearances of some of her subjects. But soon after he departs, reports come in of atrocities committed on the border of the Fair Folk’s lands, the ambassador to the Unseelie Court is found brutally murdered, and Queen Mab’s castle is bombed, killing the entire High Council. In response, the Catuvelauni and their British allies declare war on the Fair Folk, and launch a cruise missile at the Unseelie Court. The Court’s magical defenses ward off the attack, and they reshape the geography of their land to prevent any further attacks from getting through -- but their own border villages are being destroyed, and their restraint is not unlimited. Their War Mages come up with a suitable plan; it is said that an avatar of the sleeping Constantine walks the Homelands in human form, and if Fitz and Compassion are sent to Earth to find him, the Fair Folk can focus their magic upon him, heal the rift in the dream and send the invaders back where they came from.

The humans begin to bomb the Fair Folk’s villages, and the Doctor is sickened to learn that they are killing innocent civilians as well as the Unseelie Court’s soldiers. In a border village, he learns that the followers of the goddess Brigida have been vanishing, but while trying to investigate he is kidnapped and questioned by an SAS squad who have also lost a man while on a mission to plant laser targeting beacons in the Unseelie Court. When the Doctor identifies himself, Captain Caldera agrees to let him lead them to the Court and guide them through the magical defenses. The Doctor intends to allow them to plant their beacons and escape, and then reveal the presence of the beacons to the Court in order to begin peace talks. Unfortunately, the Court does not have magical defenses -- just alert guards who allow the SAS team to walk into a trap and then open fire. The Doctor tries to help the team to escape, directs them to safety and sets off to find the Court himself. Instead he stumbles across the War Mages’ laboratory and finds that it contains an open time vortex, and is then confronted by the War Mages, whom he recognizes as Cavis and Gandar. He realizes that it is they who have been stirring up hostilities -- but he is horrified when they let slip that it is Romana who has sent them on their mission. They attempt to kill him to prevent him from interfering, and he has no choice but to leap into the Vortex -- and end up drifting helplessly through time and space. The SAS team are captured, and Cavis and Gandar allow one of them to escape after implanting false memories of the Doctor’s death in his mind. They then send Compassion and Fitz through the Vortex to London of 2012, and dispose of the SAS team’s beacons -- apart from one which they unaccountably overlook...

Queen Mab knows that she and the Brigadier have made a terrible mistake, and that he is driven by some secret sorrow, but when she tries to question him he is unable to speak about Doris and drives Mab out of the room. Knowing he will never be free of his pain he arranges to have himself assigned to combat, on a mission to take out the domes generating the magical field that protects the Fair Folk’s lands from aerial bombing. He leads an assault through withering ground fire, overwhelming the defenders and destroying the domes, but discovers that against his orders Mab had sewn a magical charm into his uniform, saving his life. When word arrives of the Doctor’s death, the Brigadier blames himself, not only for the Doctor’s death but for those of the hundreds of men who followed his suicidal charge towards the enemy. He is about to shoot himself when the missing SAS soldier, Private Joe Bryce, suddenly materializes and stops him, claiming to have been sent by the goddess Brigida. All those who have vanished have gone to serve Brigida, who will soon come to save the world -- and she does not want the Brigadier to die, but to heal. Although unsure of the source of his vision, the Brigadier returns to battle. He is aware that the Fair Folk are still holding back -- but is unaware that they are trying to exercise restraint in the face of extreme provocation.

Fitz and Compassion find London a sullen and desperate place, as the people are affected by the war taking place in their dreams. The War Mages’ detector soon leads them to the avatar of the sleeping Constantine, a nervous businessman named Rex who seems to be expecting them -- and who terrifies Compassion, who feels on the verge of some vast change and understands that Rex can harm her in some unknown way. Rex reveals that as an embodiment of Constantine’s dreams he was a homeless wanderer with no will of his own until two friends showed him how to use his powers to change reality. To Fitz’s surprise, Compassion is so taken aback by his demonstration that she momentarily becomes invisible. Realizing that Rex cannot be reasoned with, Fitz lets Compassion operate the device which will transport him to Avalon -- but it doesn’t work, and they realize they have been set up to fail. But instead of attacking Compassion, Rex flees, leaving her and Fitz sealed in his office with no way out. Cavis and Gandar have failed, and in order to complete their mission they need to access the sleeping King Constantine -- which means convincing the King and Queen of the Fair Folk to launch a ground war against the humans in order to draw their forces away from Queen Mab’s castle, so that a small squadron can clear the way to Constantine. Margwyn, however, has discovered their true nature, and he realizes that he has been manipulated into causing the war he intended to prevent. He tries to kill Gandar but fails, and is forced to flee as Gandar regenerates.

As Compassion tries to resist the change she feels is coming to her, Fitz tries to bluff Rex into returning by claiming to have a secret weapon waiting in Avalon. His plan backfires when Rex tries to kill them both, but the desperate Compassion cries out silently for help. In the Time Vortex, the Doctor has just found something vast in the process of being born, something with a link to Constantine and to someone even more familiar. He hears Compassion’s cry and responds, materializing in the office and saving her. Rex reveals that it is he who opened the rift, by planting a seed of power in the mind of Matthew Bedser; each time he flew the same path on his training flights, he carried a bit of Rex with him, just enough to distort space and time and weaken the dreamfield. When the TARDIS collided with the weak point it exploded, creating the rift into Avalon. Now that Bedser’s story has been verified, he has been cleared of all charges and returned to active duty -- but he is still under Rex’s thrall, and Rex has ensured that Cavis and Gandar have overlooked one of the laser beacons planted by the SAS team. Bedser will soon launch a nuclear strike on the Unseelie Court, causing them to respond with their own weapon. Avalon will be rendered uninhabitable, and once Constantine’s domain has been evacuated Rex will seal the rift again, leaving Constantine to rule over nothing while Rex uses his power for his own ends.

The Doctor realizes that Rex is an expression of Constantine’s id, just as the protean Brigida is of his ego; Rex is trying to free himself of the restrains imposed upon him by his own consciousness, and the war in Constantine’s dream is a reflection of the war within his own mind -- a war which has been set in motion on both levels by Cavis and Gandar. But whereas they originally conceived the plan, Rex is now acting on his own behalf. Rex, angered by the Doctor and terrified of the threat that Cavis and Gandar have warned him Compassion poses to him, sheds his human form and becomes a mass of pseudo-protoplasm, in which form he tries to kill them. Without understanding how she is doing so, Compassion reconfigures space about the creature, trapping it -- but the Doctor knows that Rex will soon escape, and as he is so easily influenced by others’ ideas, those who see him as a monster will reinforce that form, turning him into a living nightmare. But if an expression of subconscious desires can think for himself and set his own agenda, then so can the Doctor, whatever Faction Paradox may be doing to his timeline. He, Fitz and Compassion set off to cross through the rift to Avalon and save the world.

The Brigadier, once again in the front lines of the war and pinned down by enemy fire, finally realizes that he will never stop loving Doris and that she is gone forever -- and without love, even a battlefield is only a place where things happen without meaning. Before anyone realizes what he is doing the Brigadier climbs out of the trenches and walks through a withering barrage of enemy fire to rescue a screaming soldier from where he lies amongst the remains of his friends. He has found peace, knowing that what he had with Doris had to end at some time -- and that, even had he known the pain of the ending, he would not have chosen to avoid loving her. But when he returns to his quarters he finds Boyce and the Knights of Brigida waiting for him, to inform him that the Fair Folk have slipped through their defenses to attack the castle. Cavis and Gandar have taken them there in their TARDIS, and are trying to clear a route to Constantine’s pool -- but just as Mab is about to give her life for her people, the Knights of Brigida arrive to save her. This time, the Brigadier is fighting for the right reasons -- for an end to the war, and for peace.

The Doctor arrives, gets behind enemy lines, surprises Gandar and removes his disguise, revealing to the shocked Fair Folk that their War Mages are impostors. The battle stops immediately, and the Doctor warns the Brigadier about Bedser, who is already on his way north to destroy the Unseelie Court. The Doctor then pursues Cavis and Gandar to the pool, where Cavis kidnaps Compassion and takes her to the roof to await the culmination of their plan. The Brigadier and Mab pursue her, but are unable to act against her for fear of harming Compassion. The Doctor, meanwhile, dives into the pool and fights off Gandar’s defenses, to find him telepathically ordering Constantine to kill Compassion. Out of desperation the Doctor rips Constantine free of his quantum generators and orders him to wake up. As the King stirs, Rex vanishes from London, Bedser is freed from his control and aborts his missile run, the forces gathering to attack Compassion dissipate -- and the Knights of Brigida collapse, the link to their goddess broken, allowing Gandar to escape. The Doctor lags behind trying to restore Constantine’s sleep, but finds that he is unable to do so -- and when Constantine wakes fully, the lands of Avalon will return to the real world, where their superimposition upon present-day Britain will kill millions.

Gandar and Cavis realize that they will now have to kill Compassion themselves -- but just as they are about to do so, Mab and the Brigadier attack them. Mab decapitates Cavis and stabs her through both her hearts, preventing her from regenerating. Just as Gandar is about to kill the Brigadier, Margwyn arrives, and is shot while impaling Gandar upon his sword. The Doctor arrives as the dying Margwyn, begging forgiveness, tells Mab that her jewelled amulet, passed down through her family for generations, is in fact a fail-safe that will restore Constantine to sleep if taken to the pool. The Brigadier accompanies her, but first admits to the Doctor that Doris has died and apologises for his foolish behaviour. The Doctor still does not understand why Cavis and Gandar went to such lengths to kill Compassion, but he soon finds out -- for Gandar is not yet dead, and with the last of his strength he shoots Compassion in the chest. The blast knocks her from the roof of the tower, and as she falls to her death, she gives herself up to the change rushing through her -- and transforms into a living TARDIS...

As Compassion tries to come to terms with her new senses, abilities and emotions, a Presidential TARDIS suddenly materializes around them and they are arrested by Chancellory Guards. Romana reveals that when the Doctor rewired Compassion’s receiver so that it would only pick up signals from the TARDIS, he failed to realize that those signals would take on the form of block transfer computations that would change the very nature of her being. The Time Lords foresaw this development when their attention was drawn to the Doctor’s interference in the affairs of the Obverse, which, the Doctor realizes, is why Iris tried to send him away. Now Compassion has become the first TARDIS Type 102, and the Time Lords intend to take her back to Gallifrey and forcibly breed from her a new generation of living TARDISes for their future war. The Doctor, appalled by what Romana has become, refuses to let her treat Compassion like a slave, and he and Fitz flee into the TARDIS that Compassion has become. At that moment Queen Mab flings the amulet into the pool, restoring Constantine’s dream -- and as the lands of the Catuvelauni return to Avalon, there is one moment of instability which enables Compassion to escape and flee into the depths of the Time Vortex. The Doctor and Fitz eventually locate her console room in the areas of the ship that were shaped by her subconscious, and realize that she is just as terrified by the changes she has undergone as she is delighted by them. Since the Doctor is responsible for those changes, he is responsible for protecting her from their consequences.