Frank and Joe Hardy's father, a well-known detective in the town of Bayport, has been hired by a pharmaceutical company to find its missing drug shipments. Their father suspects the involvement of an ex-convict named Felix Snattman. His rap sheet includes previous smuggling operations.
When Frank and Joe ask to help him, their father suggests the boys set up a telescope on the vacant Pollitt property to look for any smuggling activity. The property owner, Felix Pollitt, died about a month ago, so the house is vacant. The property was left to the owner's nephew. The house is on a cliff so the boys and their father think they can get good view of the ocean and coastline from there.
Eighteen-year-old Frank and 17-year-old Joe pick up their friends Chet Morton and Biff Hooper on their motorcycles and ride to the Pollitt house. As the friends take turns looking through the telescope from the front yard of the house, Frank sees a man climbing into a small boat that is pulled alongside a larger boat. The boys don't see any identifying marks on the boats.
The boys hear a scream from the house and decide to investigate. They don't find anyone. An upstairs closet contains a hidden door and steps to the attic, but no one is in the attic, either. When the four boys try to leave the attic, the door is locked shut, but they are able to break it down and get out of the attic.
The motorcycles and telescope are where they left them and appear to be undamaged. As Frank goes over to get a closer look at the telescope, he wonders if the smugglers saw them and tricked them into going inside the house. When he looks through the telescope, he discovers that the eyepieces are missing. Frank and Joe search the house while Biff and Chet stay outside to guard the equipment. They don't find anyone.
Frank's motorcycle breaks down on the way home. When the boys reach for the tools in the bikes to fix the loose wires, they discover that the tools are missing. Chet has some in his pocket from working on his car earlier that morning, so they fix the bikes and continue the ride home.
As the boys are riding down the coast, they see a large boat pursuing a speedboat. When a hand grenade is thrown into the smaller boat, it explodes. The passenger jumps overboard. Using a rowboat they find on the beach, the four friends rescue him. By the time the boys pull the man into the rowboat, he is unconscious. The man also doesn't have any identification. The boys take him to a nearby farmhouse along the shore. The farmer and his wife, Henry and Mabel Kane, help revive the man. Frank and Joe suspect that the name he gives them isn't his real name. When the Hardys offer to call the police or Coast Guard, the man declines and asks Henry if he can stay overnight. The couple agrees.
After a snack, the four friends finish the ride home. Frank and Joe tell their parents what happened. The boys and their father decide they will go back to the farmhouse after dinner. Over dinner Mr. Hardy tells his family that the heir to the Pollitt property hasn't been found, but he has a criminal record and is wanted for burglary. When the Hardys arrive at the farmhouse, Henry and Mabel are tied up, and the mystery man has been kidnapped.
The next day, Frank and Joe wonder if the smugglers are using the cliff house as a base or hideout. The following day, their mother shows them a note from Mr. Hardy that doesn't include their secret sign. She thinks something has happened to the boys' father. Frank and Joe soon start looking for their father.
They go to the waterfront and talk to Pretzel Pete, a vendor their father often gets information from. Pete hasn't seen their father since Monday morning. He tells the boys that he told their father about a sailor named Ali Singh who came into town a few weeks ago for a meeting. The meeting was to take place at a farmhouse on Hillcrest Road. Pete thinks Mr. Hardy was going to go investigate the farmhouse.
Frank and Joe go to the Hillcrest Road farmhouse, passing the Kanes' farmhouse on the way. The Hillcrest Road farmhouse is empty, but the brothers find a torn towel with a partial logo on it. The boys take the towel to the police station, and the police chief identifies it as being from a ship named Marco Polo.
The next day a truck driver says he saw the boys' father walking by the Pollitt house on Monday. Frank and Joe and their friends Chet, Biff, Tony Prito and Phil Cohen go to the Pollitt property that afternoon.
This time the Pollitt house isn't abandoned. Broken windows have been fixed, the yard has been cleaned up, and people are there. As the group is engaging the woman and two men in conversation, Frank moves closer to the house to look inside. Frank gives a description of his father without identifying him, but the new house occupants insist they haven't seen anyone. Frank looks in the kitchen and sees a cap like the one his father wore, hanging on a peg. He asks for a drink to get a closer look. When he is leaving the kitchen, he notices the cap is gone.
The boys start to go, but decide to return and ask about the cap. The house occupants initially give different stories, but eventually say they found the cap on the road and give it to Frank. The cap has his father's initials in it.
The six friends visit the town's police chief and show him the cap. The Pollitt house is out of the chief's jurisdiction, but he will talk to the state police. At home, the boys don't tell their mother about the cap but do tell her that they talked to the police.
Frank and Joe wonder if their father's disappearance, the smuggling gang and the Pollitt house are connected somehow. They learn that the Marco Polo is docking the next morning, and Ali Singh will be onboard. The brothers ask their friend Tony to help them explore the cliffs to see if they can find a secret harbor or tunnel. Chet asks to go, too.
The four friends meet at the boathouse and ride to the cliffs. Frank spots an opening in the cliff's rocky shoreline. A man standing in a pond at the opening of a cave tells the boys to leave. Frank thinks it might have been Felix. After cruising the bay for a while, they head back to the cliffs.
As they get closer, the boys see another motorboat coming from the tunnel and then hear a rowboat. While they can't make out all the conversation or identify the men talking, the boys hear Ali's name mentioned. The men also talk about the boys' visit to the Pollitt house and people being locked up. Joe and Frank are even more convinced that their father is being held prisoner and that this is the smugglers' hideout. The brothers decide they need to investigate further on foot. Tony drops the brothers offshore so they can swim to the tunnel entrance undetected. Tony and Chet head back to town to talk to the Coast Guard.
Once Frank and Joe are inside the mouth of the cave, they discover a hidden door at the edge of a pond. The door opens to a waterway with a wharf at the end. A maze of doors and passageways leads to an underground storage room filled with boxes and imports. A hidden door in the corner leads out of the room. The boys hide when they hear voices.
As the unidentified men approach the storeroom, they talk about shipments containing drugs and making room for new shipments. Once in the room, the men mention the gang and Felix. After the men leave, the boys start up a passageways that leads out of the room.
As they approach a door, the brothers hear voices on the other side. A man demands that someone write a letter to identify his prisoner as Mr. Hardy and himself as Felix. Frank and Joe's father refuses to write the letter. After the smugglers leave, the boys find their father in one of the underground rooms off the corridor on the other side of the door. The three start to escape but are caught and tied up. After some discussion, the gang decides to hand the prisoners over to Ali, who knows the captain on another ship headed for the Far East.
A guard is left with the Hardys while the gang finishes loading, but he falls asleep. Mr. Hardy is able to untie his ropes, overpower the guard, take the guard's weapons and then untie his sons. The Hardys escape through a passage that leads to a trap door under a shed on the Pollitt property. The smugglers discover the three are missing before Frank, Joe and their father reach the road, so the trio hides in the house's attic. Felix eventually discovers the Hardys in the attic and decides to keep them as hostages in case the police try to stop him from leaving. Members of the smuggling gang nail planks across the attic door so the Hardys can't escape, again.
Back in Bayport, Tony and Chet arrive at the Coast Guard station, tell their story and offer to help. Chet tells the officer that Frank and Joe think Ali dumps the drugs overboard from the Marco Polo and then smugglers pick them up by boat. Biff, Phil and their friend Jerry Gilroy are already at the station. Worried about her sons, Frank and Joe's mother had asked Biff to look for them. The Coast Guard officer calls the state police. He also calls the captain of the Marco Polo, confirms Ali is part of the crew and asks the captain to discreetly keep an eye on him.
The Coast Guard launches a sting to catch Ali and his partners. Biff, Phil and Jerry ride along on the patrol boat, while Tony and Chet lead another patrol boat to the tunnel. After the sting operation, the group goes to help Tony, Chet and the other Coast Guard officers.
As the Hardys' friends and the Coast Guard arrive on the Pollitt property, so do the state troopers. While Felix is distracted, attempting to negotiate with the police, the Hardys cut through the wooden bars with the knife they had taken from the guard. Once outside the attic, the three overpower Felix. The rest of the gang is arrested. The state police set up a roadblock for one gang member who escaped in a vehicle.
Joe tells the officers that the fourth hostage Felix boasted about to the police, before Felix was captured, was a Coast Guard operative. The Hardys think the operative is probably being held in a cargo ship offshore. The Coast Guard identifies the operative as the same man that the Hardys rescued.
Felix realized the man was working undercover for the Coast Guard when he saw him visit the patrol boat, which is what Frank saw through the telescope on their first visit to the Pollitt property. After the man's cover was blown, the smugglers tried killing him with the hand grenade thrown into his boat and then kidnapping him from the Kane farmhouse.
The Coast Guard officers radio for patrol boats to look for the cargo ship; the state police officers wait with the Hardys, their friends and the captured smugglers.
Felix is the missing nephew and heir to the Pollitt property. He added steps to the existing pond, passageways and underground rooms. He also built a new woodshed to replace the dilapidated building covering the trap door connecting the underground passageways to the Pollitt property. The telescope eyepieces and boys' tools are found in a kitchen drawer. The smugglers appear to have written the note themselves to Frank and Joe's mother when the boys' father refused.
Felix explains his childhood was very different from the Hardy boys', and he didn't like his Uncle Felix very much. He plans to try to claim the property now and ask the executors to operate it as a boys' home while he is in jail.
A Coast Guard officer comes back and reports that the cargo ship has been found. The captain of the ship was arrested, and the Coast Guard operative rescued.