Set in a near-future, dystopian Orange County, California, the film revolves around a highly addictive and hallucinogenic drug called Substance D. The government wages an all-out war on drugs, employing high-tech surveillance measures and a network of undercover operatives. At the center of this drug crisis is Bob Arctor, an undercover detective who infiltrates a group of Substance D users to discover the supply source. Arctor wears a "scramble suit" that shields his identity, even from fellow police. His involvement with the group of dysfunctional drug users, including the erratic Barris and the paranoid Luckman, leads him deeper into the drug culture. Arctor begins to lose his grip on reality due to his own consumption of Substance D, which causes a split between his professional responsibilities and personal loyalties.

Complicating Arctor's mission is his relationship with Donna, a drug dealer he hopes will lead him to the elusive source of Substance D. As Arctor's addiction grows, his cognitive state deteriorates, making it increasingly difficult to maintain his dual life. The scramble suit, meant to protect his identity, becomes a metaphor for his fragmented personality, and his ability to discern his true self from his undercover persona falters. The boundaries between the police and the drug users, the watchers and the watched, begin to blur, calling into question the reality of the identity Arctor has fought to keep intact.