Because of his German parentage, government agent Carl Steelman (George Sanders) is assigned to by his chief, Craig (Ward Bond), to join the Nazi Bund, to obtain information on the underground activities of the group. Steelman is welcomed and becomes a trusted member of the group. His father, Julius Steelman (Ludwig Stossel),unaware of this son's real mission, drives him from their home. The government agents raid a Bund meeting and Steelman assumes the identity of one of the members who was about to depart to Germany for training. In Berlin, Steelman meets and falls in love with Helga Lorenz (Poldy Dur), a member of the German underground. In order to hide his true identity and complete his mission, Steelman has to betray the girl to the Gestapo, but later manages to rescue her and see her safely on her way to England. Frau Reiker (Anna Sten), wife of the man whose identity Steelman has assumed, threatens to turn him over to the police. He convinces the Gestapo that she is crazy and she is confined to an insane asylum. His training completed, Steelman is sent to America, via submarine, in charge of a group of eight saboteurs. Before they depart the sub, off the Long Island coast, Steelman plants a time-bomb in the sub.

Carl Steelman, a German-American attorney for a mining company, is implicated in a German sabotage operation when he and seven other men are arrested shortly after arriving in a German U-Boat on the shores of New York. Following the trial of the saboteurs, Chief Craig of the F. B. I. answers a question posed by one of his men about Carl's involvement in the group by telling the story of Carl's first exposure to the German-American Bund: Despite his parents' protests, Carl, a youth, attends Bund meetings and gets into trouble with the law. Unknown to his family and the Nazi Bund leaders, however, Carl is an American agent on a top secret mission to infiltrate the higher echelons of the Nazi organization and investigate their training school for saboteurs. As part of the government's investigation of the school, Carl is given a passport belonging to a German enlisted man, Ernst Reiker, whose identity he is to assume, and is sent to Hamburg, Germany. There, Carl befriends Helga Lorenz, a Nazi operative who is suspected by the Germans of being a double agent. Given orders by the Nazis to determine Helga's loyalties, Carl soon discovers for himself that she is a double agent when he finds fake candles containing anti-Nazi propaganda in her home. Confident that Helga can be trusted, Carl confesses that he has been sent by the Nazis to spy on her and suggests that she flee before they send her to a concentration camp. Before Carl can dispose of the candles, however, Nazi agents confiscate them and Helga is immediately captured. During Helga's interrogation, she confesses to being a double agent and is ordered to do time in a detention camp. Carl cleverly saves Helga, though, by using his skills as a saboteur to sabotage the vehicle in which she is being transported. Carl then takes Helga to a boat that is waiting for them on a river and sends her to a safer place. Meanwhile, Frau Reiker, the wife of the real Reiker, causes trouble for Carl and his mission when she decides to pay a surprise visit to her husband and finds Carl in his hotel room. Though confused and angry, Frau Reiker consents to Carl's request that she give him twenty-four hours to find out what happened to her husband. Having stalled Frau Reiker, Carl rushes to his German commander, Colonel Taeger, and tells him that his wife has gone mad and that she is convinced that he is an impostor. Arguing that her delusion poses a security threat, Carl persuades the colonel to have Frau Reiker sent to a sanitarium. Meanwhile, back in America, Carl's father Julius, who never completely recovered from the shock of his son's apparent involvement with the Bund, has become seriously ill. To save Julius, the F. B. I. sends an agent to the Steelmans, and after swearing him to an oath of absolute secrecy, the agent tells Julius that his son is on a top secret mission. Julius rejoices at the news and makes a speedy recovery, but is unable to contain his excitement and pride and tells his physician, Dr. Herman Baumer, about Carl. Baumer, a Nazi sympathizer, informs on Carl, and orders are placed in Germany to have the American arrested. Carl, however, has already left Germany, and is en route to America on his first mission of sabotage. Although it is now clear to Taeger that Frau Reiker was telling the truth about Carl, Taeger kills her in her jail cell because she might expose his mistake if she is released. When the submarine on which Carl is traveling comes under attack from U.S. war planes, Carl escapes in a rubber raft and watches as the submarine explodes. After landing on American soil, Carl is arrested along with eight other saboteurs, but he is soon released when his identity is learned. Six of the eight saboteurs are tried and executed, and Dr. Baumer is exposed as a Nazi agent and is arrested.