The short opens with Mater pranking the other residents of Radiator Springs by moving Red's flowers, bursting out from a pile of tires to jumpscare Guido and Luigi, dressing up as a cone vampire to scare Sally, attempting to scare Lizzie while she's sleeping (which is unsuccessful), moving Fillmore's gas cans back outside while he takes them in and finally jumpscaring Lightning McQueen when he believes Mater is hiding behind a pile of cans ready to jump out (what was really behind the pile of cans is one of Mater's signs). This sequence then culminates with Mater teasing McQueen as if he had seen "the Ghostlight," a Route 66 urban legend.
Sheriff admonishes him for mocking the urban legend. When McQueen asks about the Ghostlight, Sheriff explains that the Ghostlight is a blue paranormal orb of light that haunts Radiator Springs, but Mater reminds Lightning that it is not real. Sheriff points out that it is real, shocking them. He then tells everyone the tale of the Ghostlight, explaining the disappearance of a young couple that encountered it, leaving behind two "out-of-state license plates" and that it hates nothing more than the sound of clanking metal. At this point, Mater is so scared that he begins making the noise that the Ghostlight dislikes the most and tries to stop himself. Sheriff ends the story with a warning that the Ghostlight could be anywhere.
The rest of the gang say goodnight and turn off all the store lights, leaving a nervous and scared Mater all alone in the dark. Nervous, he returns to his junkyard and sees a shadow of a monster and, in a sudden shock, shines his light on it, revealing it to be just a pile of junk with another of his signs. After he accidentally breaks his headlights in fear, he enters his wall-less garage and closes the door, which then falls down. A light suddenly appears in front of him and he panics, believing it to be the Ghostlight until he realizes it is just a lighting bug (actually resembling a Volkswagen Bug). Suddenly, a blue light appears behind him. After using his mirror to observe it, he runs for it thinking it is that Ghostlight.
For the remainder of the short, mayhem ensues as Mater is pursued by the Ghostlight, ultimately revealed to be just a lantern affixed to Mater's towing cable by Lightning and Guido. He drives into Willy's Butte and wakes Frank and his tractors and goes into slow motion where he sounds like a bull. The other residents of Radiator Springs watch as Mater drives around frantically with the "Ghostlight" on his tail, before Mater tires himself out and discovers the truth.
The cars tell him it was all a prank to pay him back for all his pranks he played on them. Sheriff gently tells Mater that the only thing to be scared of on Route 66 is "his imagination." Doc jokingly adds that all Mater really had to fear was "the Screaming Banshee" before they all leave Mater, alone and frightened once again.
In a post-credits scene, Mater actually encounters the Screaming Banshee (which is actually an enormous truck who is both a monster truck and a construction vehicle with a broken windshield and a "BANSHEE" logo on the front) on the road, but unaware it is him, warns him of the Banshee before departing for the safety of his junkyard once again, leaving the Screaming Banshee confused.