Shawn and Gus go to investigate the past residents of Condo 536. They find a name, Ray Brauer, a guy who lived in 536 before Lassiter and before the guy who killed himself, who ended up losing his mind and leapt to his death from his bedroom window.
Juliet finds another bit of creepy information about Prospect Gardens: the architect of the building killed his wife then himself many years ago. Shawn and Gus have trouble believing all of this, but change their tune when they see Lassiter sitting alone in his condo, wearing a monocle and a maniacal look on his face, staring at a TV… that is nothing but static.
Shawn and Gus know they need to get to the bottom of this or Lassiter will indeed go crazy. So they head back to see Woody who tells them that both of the previous tenants dead bodies had the psychoactive "amyl nitrate" in their systems at the time of death.
This leads them to think someone in the building was doing this to these men on purpose. They're now back on Lloyd, who would have access to everyone's apartment. They go to his place and discover that he is a kleptomaniac; he even stole one of Amy's paychecks. Then they discover a small bottle of what could be amyl nitrate in his belongings.
Gus then goes to Lassiter's condo to check up on him. Sure enough, Gus finds a jar of nitrate permeating the condo.
Just then, Lassiter emerges from his bedroom looking crazy. Gus tries to tell him that he has figured out that someone has been messing with his place, but Lassiter is too far gone all ready. He instead blames Gus and Shawn and says they are the ones trying to make him crazy. The fight escalates into Lassiter chasing Gus with a sword in hand. Lassiter chases Gus into the basement. Just as Lassiter is going to take Gus down like he's Jack Nicholson in "The Shining," Shawn charges in and saves him. Then they discover Lloyd's dead body in the basement.
Later, Lassiter is in recovery mode, still unsure of what happened. Since they know that the killer isn't Lloyd, Shawn flashes back a paycheck he saw earlier in Lloyd's apartment, a check he had stolen from neighbor Amy.
Shawn and Gus head to Lloyd's place to see the piece of mail. Upon opening it, Shawn discovers that this isn't a paycheck and that Amy lied about being a nurse. She, in fact, is a patient, and the envelope is a bill from her psychiatrist.
Shawn approaches Amy and accuses her of murdering Ray after he rejected her romantically; she also killed the next tenant in 536 after he rejected her too. She pumped amyl nitrate through their vent which eventually drove them crazy and lead them to what appeared to be their suicides. She used the building's creepy history to explain the 'haunting' each man reported, and she was doing the same exact thing to Lassiter until she got caught.
Amy knows she's been figured out, and tries to escape. She runs up the stairs to the roof and Shawn and Gus try to track her down. Once they arrive on the roof, she is nowhere to be seen, until Shawn and Gus turn their backs to see she is charging at them. Shawn and Gus duck out of the way and Amy goes flying off the roof. To everyone's shock, she lands on the awning that Lassiter had Lloyd fix and ends up surviving the fall. The police are waiting for her at the bottom of the building and arrest her the second she comes to.
Days later at the Psych office, Frank, Juliet's father, arrives asking Shawn about the strange message he received from Shawn a week ago. He had been in Tanzania and wasn't able to reconnect until now. The message Shawn left for Frank was about Juliet. Shawn tells him that he had plans to propose to Juliet, but didn't end up doing it. But since Frank is here now, he asks him for her hand in marriage… for future purposes… just in case. Frank tells Shawn to call him when he's actually ready propose, and that they will talk then.