Newlyweds Jamie and Lisa Ashen receive a strange package: an old ventriloquist doll named Billy, with no sender's name. Lisa remembers a creepy rhyme from their hometown of Raven's Fair about a ventriloquist called Mary Shaw, who had no children, only dolls. While Jamie goes out to get food, Lisa is attacked in their bedroom by something under a bedsheet. She vomits blood and is dragged back into the room. Jamie returns and finds her dead on the bed, her tongue ripped out. He hears her voice say "I have a surprise for you, Jamie" - even though she no longer has a tongue.

Detective Jim Lipton questions Jamie and clearly thinks he is the killer, but has no evidence to hold him. Jamie finds a note about Mary Shaw in the doll's case and drives to Raven's Fair, a town that looks half-dead, to bury his wife and search for answers. He stays with his estranged father Edward, who is wheelchair-bound after a stroke, and Edward's much younger new wife, Ella. The local mortician, Henry Walker, tells Jamie the town's dark history. In the 1940s, Mary Shaw was a ventriloquist whose show was heckled by a boy who said he could see her lips moving. Soon after, the boy vanished. The townspeople blamed Mary Shaw, cut out her tongue, and killed her. Her will asked for all 101 of her stage dolls to be buried with her, and for her own body to be made to look like a doll. Since then, families in Raven's Fair have died with their tongues torn out.

Henry's wife Marion, who is not well in the head, warns Jamie to bury the doll. Jamie digs up Mary Shaw's grave - surrounded by more than a hundred small graves for the dolls - and puts Billy back. It does not help. At night, the doll appears in his motel room, staring at him. Lipton, who has followed Jamie, takes the doll as evidence. Jamie steals it back.

Henry tells Jamie more: the boy who heckled Mary Shaw was Michael Ashen - Jamie's great-uncle. The Ashen family led the mob that killed her. Jamie explores Mary Shaw's ruined theater across Lost Lake and finds a book about how to make the "perfect doll," along with photos of Michael. Meanwhile, Mary Shaw kills Henry in his own crawlspace after he screams. At the theater, Jamie and Lipton find all 100 remaining dolls in a display case, and the marionette made from Michael Ashen's body. They set the dolls on fire, but Lipton falls from a catwalk and screams, and Mary Shaw takes his tongue.

Jamie returns to his father's house with the last doll, Billy. Mary Shaw attacks, and Jamie throws Billy into the fireplace. He believes he has won. Then he touches his father's shoulder - and Edward's back splits open, revealing a wooden rod where his spine should be. Edward has been dead all along, turned into a ventriloquist dummy. Ella appears and speaks with Mary Shaw's voice: "Now who's the dummy?" Jamie screams, and Mary Shaw rips out his tongue.

The film ends with Mary Shaw's photo album of new victims: Lisa, Henry, Lipton, Edward, Jamie, and Ella - the "perfect doll" Mary Shaw had always wanted to make. Her revenge on the Ashen family is complete.

The ending has two big reveals. First, Jamie's father Edward has been dead for most of the film. The "man" Jamie talked to, ate with, and argued with was Edward's corpse, hollowed out and turned into a life-size ventriloquist dummy, with Ella working his voice from behind. If you watch the film again, you can see Ella always stands behind Edward whenever he speaks. That is why Edward never moves or reacts on his own.

Second, Ella is not a victim. She is the "perfect doll" from Mary Shaw's book - a living woman turned into the host for Mary Shaw's spirit. The scrapbook Jamie found in the theater showed the plans for the perfect doll, and the face drawn in it was Ella's. She murdered Edward, puppeted his body, and waited for Jamie to destroy Mary Shaw's other dolls, because that cleared the way for her to be the only vessel left.

The cruelest detail comes from Mary Shaw herself: Lisa was pregnant. Mary Shaw killed her to destroy "the last Ashen," the unborn child. That is the "surprise" Lisa's voice teased in the opening scene. Mary Shaw's revenge is total: every Ashen and everyone who helped them is dead, and the family line ends forever. The final shot of the photo album shows that Mary Shaw treats her murdered victims the way she treated her dolls - collected, posed, and kept forever.