The inhabitants of Antonio Island, situated off the coast of Oregon, are preparing to celebrate the unveiling of a statue honoring the four men (Norman Castle, Richard Wayne, David Williams, and Patrick Malone) who founded the town in 1871. When townie Elizabeth Williams (Maggie Grace), descendant of founding father David Williams, finds the buried journal of Patrick Malone, she discovers that the town was founded with gold stolen from the Elizabeth Dane, a clipper ship that was deliberately sunk over 100 years ago in order to prevent its owner, a wealthy leper named William Blake, from founding a leper colony on the island. As the townsfolk begin their celebration, local radio DJ Stevie Wayne (Selma Blair), descendent of founding father Richard Wayne, notices a mysterious, glowing fog bank rolling in, bringing with it the vengeful ghosts of the Elizabeth Dane.

The Fog is a remake of The Fog (1980) (1980), which was an original work written by by American film-makers Debra Hill and John Carpenter. According to Carpenter, the inspiration came from two places: (1) a film called The Crawling Eye (1958) (1958), a story about alien creatures that live in the clouds at the base of Trollenberg Mountain in Switzerland, and (2) an eerie fog Carpenter and Hill saw during a visit to Stonehenge. The story of the shipwreck and its subsequent plundering was based on the SS Brother Jonathan, an actual shipwreck that took place in 1865 near Goleta, California. The screenplay for this movie was written by Cooper Layne.

Elizabeth, Nick (Tom Welling), Stevie and her son Andy (Cole Heppell), Elizabeth's mother Kathy (Sara Botsford), Father Malone (Adrian Hough), Mayor Tom Malone (Kenneth Welsh), and Spooner (DeRay Davis) barricade themselves in the Town Hall, but the vengeful spirits break in by tossing Hank Castle (Alex Bruhanski) through a window. They kill Kathy and Father Malone, and Captain Blake (Rade Serbedzija) sends the Mayor tumbling backwards through the graveyard. Elizabeth and Nick follow but can do nothing before Blake reduces the Mayor to a pile of burning cinders. Nick turns to leave, but Elizabeth approaches Blake, who seems to recognise her. As he kisses her, Blake transforms from a hideous corpse into his human body, and Elizabeth is transformed into a spirit. As Nick watches, Elizabeth, Blake, and the other spirits disappear, and the fog recedes. In the final scene, as Nick tosses the Malone journal into the sea, Stevie wonders whether the spirits came for revenge, justice, or to claim something they lost long ago. "One thing is for sure...," she concludes, " something did come back from the sea. Sooner or later, everything does." This is followed by a photo of Elizabeth Dane and William Blake on their wedding day, suggesting Elizabeth Williams was the reincarnation of his wife from 134 years earlier.

Although it is not spelled out explicitly during the movie, most viewers come to the conclusion that Elizabeth Williams, although a descendant of founding father David Williams, was actually the reincarnation of Captain Blake's wife, Elizabeth Dane. This conclusion is based on several hints in the movie: (1) the same actress plays both Elizabeth Williams and Elizabeth Dane in the flashbacks, (2) Williams was having dreams of the fire on the schooner and of her drowning, (3) she recognized the symbol of the scales on the 1871 pocket watch, and (4) she states that she never felt like she belonged on the island.