Brothers Pedro and Jimi live on a quiet farm in rural Argentina. One night, they hear gunshots in the nearby woods and discover the severed torso of a man carrying strange instruments. The trail leads them to a nearby shack where a sick woman lives with her two sons. One of the sons, Uriel, is an "encarnado" (a Rotten) - a bloated, rotting man whose body is gestating a demon waiting to be born. The brothers alert the wealthy landowner, Armando Ruiz. Ruiz knows that calling the government or the police is useless because government "cleaners" take too long to arrive. Instead of following the strict ancient rules for executing a Rotten, Ruiz forces the brothers to load Uriel into the bed of his pickup truck to dump him miles away on public land. During the ride, Uriel slips off the truck into the darkness. When the men search for him, the rotting body has vanished. The next morning, the infection spreads rapidly. Ruiz's prize goat behaves strangely, whispering to him. When Ruiz shoots the goat with a rifle, his pregnant wife emerges and kills him with an axe before taking her own life. Realizing the contamination is spreading, Pedro rushes to the nearby town to rescue his ex-wife Sabrina, her new husband Leonardo, and his two sons, Santino and Jair (who has autism). Pedro arrives in clothes covered in Uriel's fluids. Despite his warnings, Leonardo dismisses the threat. In a shocking sequence, the family dog contracts the demon's influence, grabs Sabrina's young daughter by the throat, and drags her across the yard. Leonardo shoots the dog, further spreading the evil, and is swiftly possessed. Pedro flees with his sons, Jimi, and their elderly mother. Sabrina, now infected, pursues them, abducts Santino, and brutally executes him on the roadside. The shattered survivors take refuge at the remote home of Mirtha, an experienced former cleaner. Mirtha explains the seven rules of the Rotten: avoid electricity, do not speak evil names, and never use firearms, as killing a host with normal weapons only releases the demon. Mirtha and Pedro arm themselves with specialized antique tools and head to an abandoned rural school where the demon has gathered local children under its hypnotic spell. Pedro finds Uriel's remains beneath the stage and discovers the demon is about to be born through one of the children. Consumed by rage and panic, Pedro ignores Mirtha's warnings and attacks with an ordinary fire axe. His mistake destroys the ritual, kills Mirtha, and allows the newborn demon to emerge into the world triumphant. Pedro walks home defeated, only to find his mother dead and Jair regurgitating Santino's hair.

The ending of When Evil Lurks is a total victory for evil. The demon's master plan was never to stay inside Uriel; it manipulated Pedro's fear and ignorance from the very beginning. By moving Uriel, Pedro broke containment. By shooting guns, the characters allowed the demonic essence to leap into animals, mothers, and children. The ancient cleaners possessed specialized knowledge and physical apparatus to safely burn and neutralize a Rotten. When Pedro chopped into the entity with an axe, he played directly into the demon's hands, giving it the violent birth it required. The handsome, pale child demon walks out of the school surrounded by smiling possessed school children, free to walk the earth unopposed. Back at the farmhouse, Jair regurgitates an apple containing Santino's hair, revealing that the boys were infected all along. Pedro sits alone on his porch, stripped of his family, his sanity, and his future. The film ends on a bleak warning: when evil takes root, human panic is its greatest weapon.