A young couple sneaks into the Nath Villa, a huge bungalow in Goa, only to discover that a ghost haunts the house, causing them to flee. Days later, Aditya Sharma and his wife Anjali Sharma move into the house with their young son, Aman “Banku” Sharma. Aditya is an engineer working on a cruise line who soon bids Anjali and Banku a brief farewell. Days after Aditya’s departure, Anjali hires Anthony, a drunk thief, as a housekeeper. One night, Banku encounters the ghost, whose name is Kailash Nath. Banku nicknames him Bhoothnath, a portmanteau of bhoot (ghost in Hindi) and Nath, his surname.
Although Bhoothnath tries to scare him off, Banku considers him an angel and treats him like a friend. Banku’s innocent love melts Bhoothnath’s anger. One day Bhoothnath unintentionally causes Banku to sustain a head injury after startling him and causing him to fall down the stairs; the two reconcile in the hospital and become best friends. Bhoothnath’s son, Vijay Nath, returns from the United States to sell off the bungalow. Bhoothnath is angry, as he does not want his home demolished, and scares the buyers. Anjali learns of Bhootnath’s existence and he finally reveals his story to Banku and Anjali.
Many years ago, Kailash Nath had a happy family with his wife Nirmala and son Vijay. After growing up, Vijay moved to the U.S for higher studies. He then got married and permanently settled in the United States despite Kailash requesting him to return home for Nirmala’s sake. Days later, Nirmala died, and Vijay returned with his wife and son. Unknown to Kailash, Vijay tried to sell the bungalow. This angered Kailash, resulting in an argument. Vijay and his wife, against his own son’s and Kailash’s protests, got ready to return to the US . Kailash ran after him to stop him from leaving and fell down the stairs. Unaware that he has just died, Kailash’s ghost rose and ran after Vijay but Vijay couldn’t see him and left. As Kailash walked back inside the house, he saw his own dead body lying on the floor and realized he is now a ghost.
Aditya and Anjali decide to perform Bhoothnath’s final rites to give him salvation. Aditya meets Vijay and confronts him. Guilt ridden, Vijay arrives during the ceremony and apologizes for his mistakes and tells the Sharma family that they can live permanently in the house. Bhoothnath forgives his son and is freed. Banku realises this and gives Bhoothnath a tearful goodbye. A distraught Banku leaves for school, missing Bhoothnath, who has disappeared. However, the two are happily reunited when Bhoothnath exits the house, though he requests Banku and the viewers to hide it.