Sherlock's return begins with a theory imagined by Anderson. Anderson hypothesizes that Sherlock faked his death using a realistic mask and the help of a hypnotist. However, this theory is promptly dismissed by Inspector Lestrade, who believes it's driven by Anderson's lingering guilt over his role in misunderstanding Sherlock, which he thinks led to the suicide.
Meanwhile, Mycroft personally orchestrates an operation in Serbia to rescue Sherlock, who is being tortured for information. Mycroft informs Sherlock that an underground terrorist network is now active in London and that Sherlock is needed to counter this threat. Sherlock officially returns to London.
Watson visits 221B Baker Street again and meets Mrs. Hudson. Still traumatized by Sherlock's apparent suicide, Watson has avoided using a mobile phone to contact friends. Mrs. Hudson is visibly emotional upon seeing him. Watson reveals he has a new partner, Mary, and plans to marry. He reiterates to Mrs. Hudson that he and Sherlock were not lovers, stating firmly, "I am not gay." Mycroft confirms to Sherlock that neither Watson nor Mrs. Hudson has been told that Sherlock is alive.
Sherlock plans a surprise reunion. He goes to the restaurant where Watson is about to propose to Mary. Disguised as a waiter, Sherlock appears before Watson. His characteristic sharp tongue immediately provokes Watson, who punches him. As Sherlock tries to explain his disappearance and the need for secrecy, Watson punches him again. Sherlock then invites Watson to join him on a new case, only to be punched a third time and refused.
Without his assistant, Sherlock reluctantly asks Molly to help him investigate. Meanwhile, Watson shaves off his mustache because neither Sherlock nor Mary liked it, earning a tease from Mary. Molly, now in a relationship, cannot continue assisting Sherlock indefinitely.
As Sherlock begins investigating the underground network's terrorist plot, Watson, having finally decided to go to 221B to offer his help, is kidnapped. Sherlock, riding a motorcycle with Mary, races to a Bonfire Night celebration and rescues Watson from nearly being burned alive on a pyre.
A railway worker reports strange occurrences in the subway system. Sherlock and Watson follow the uncover a plot involving a disused subway tunnel where a bomb has been planted. They find an abandoned train carriage filled with explosives. Sherlock pretends he cannot defuse the bomb and tearfully apologizes to Watson. Watson, moved, forgives him, calling Sherlock the wisest and greatest man he has ever known. This emotional moment, however, is later revealed to be a manipulation by Sherlock to secure forgiveness; he successfully defuses the bomb, averting a disaster targeting Big Ben and Parliament.
Sherlock seeks out Anderson and explains his actual plan for surviving the rooftop fall, but Anderson remains skeptical. Although the subway bomb case is officially solved, Sherlock suspects a mastermind is still pulling strings and vows to investigate further. The bomber is captured, but the case is only superficially closed.
Regardless, London's consulting detective has returned to 221B Baker Street, accompanied once more by his loyal friend and assistant, Dr. Watson, ready to delve into the city's most complex cases.