Taylor, a Native American shaman, takes Steve into the desert and gives him the "Power of Smoke" so that he can repel the ghost of a deceased, insane preacher who is after Carol Anne.

One night, Steve lets his guard down and gets drunk, swallowing a Mezcal worm that is possessed by the evil preacher Kane who temporarily possesses him.

Steve gives the car to Taylor, knowing he had admired it earlier, and Taylor drives away with Tangina. After the Freelings realize they now have no ride home, they chase after the car.

The Freeling family has sent Carol Anne to live with Diane's sister Pat and her husband Bruce in Chicago. Carol Anne has been told she is living with her aunt and uncle temporarily to attend a unique school for gifted children with emotional problems, though Pat thinks it is because Steven and Diane just wanted Carol Anne out of their house.

Kane takes possession of reflections in mirrors, causing the reflections of people to act independently of their physical counterparts.