After a meeting in space with a group of unseen aliens the Doctor returns to Gallifrey and claims the presidency of the Time Lords. Leela meanwhile tries to work out why he is behaving out of character. At his induction, the Doctor is 'crowned' with a device giving him access to the Matrix. He then arranges for the transduction barriers around Gallifrey to be put out of action by K9. When this is done, his alien 'friends' materialise. They are telepathic invaders called Vardans.

The Doctor links K9 to the Matrix in order to determine their point of origin. His plan is to place a time loop around their home planet, but he must avoid arousing their suspicions - hence his erratic behaviour. He banishes Leela to the wastelands of outer Gallifrey for fear that she might unintentionally jeopardise his plans. There she meets a group of Gallifreyan outsiders, and together they organise an attack on the Capitol to fight off the invaders.

The Doctor finally springs his trap and the Vardans are banished. Then, however, Gallifrey is invaded by Sontarans who, unknown to the Doctor, were using the Vardans to enable them to conquer the Time Lords. The Doctor uses knowledge extracted from the Matrix by K9 to construct a forbidden de-mat gun, activated by the Great Key of Rassilon. He then uses this to kill the Sontarans, although his memory of recent events is wiped in the process.

Leela announces that she wishes to stay behind with Andred, one of the Chancellery guards, with whom she has fallen in love. K9 elects to remain with her.