Madge's summer vacation has ended, and she is back in school. Madge and her friends initiate Cara Wayne into their secret society by requesting that Cara visit the spooky Swenster mansion at night. Cara comes back tremendously frightened because she saw a ghost digging on the property. While the other girls are skeptical, Madge feels that Cara did see something strange.

Madge and Cara visit the Swenster mansion the next day and meet Agatha Swenster, who plans to sell the house. The girls quickly become friends with Miss Swenster and help her prepare the mansion and its contents for auction. The girls learn of a valuable pearl necklace that has been missing for years and how much its recovery would mean to Miss Swenster. The girls search for the pearl necklace and hope that they can recover it so that Miss Swenster does not have to sell the mansion.