Set in the 24th century, the series follows the adventures of the crew of the Federation starship USS Enterprise-D. In this episode, the Enterprise attempts to recover the Pegasus, a Federation starship that contained experimental technology of vital strategic importance and was also the first assignment of Enterprisefirst officer, Commander William Riker (Jonathan Frakes).
The Enterprise is ordered on a priority mission to collect a member of Starfleet Intelligence: Admiral Eric Pressman (Terry O'Quinn), former Captain of the USS Pegasus, where Will Riker (Jonathan Frakes) first served after graduating from Starfleet Academy. Pressman informs Captain Jean-Luc Picard (Patrick Stewart) and Riker that intelligence has located the Pegasus in the Devolin system near the RomulanNeutral Zone. Though it is presumed destroyed, Pressman orders the Enterprise to either recover the ship's remains or destroy them to prevent them from falling into the hands of the Romulans. In private, Riker attempts to discuss the events aboard the Pegasus 's last mission and questions Pressman's intentions, but Pressman instructs Riker to remain silent until the mission is completed.
Later, Picard summons Riker to his quarters to ask him about the Pegasus. Prior to the assumed destruction of the vessel, there was a mutiny. Riker says that when the Pegasus ' warp core overloaded, several officers took up arms against Pressman, fearful that the Captain was out of control. Riker pulled his weapon in the Captain's defense, but they were overwhelmed and barely managed to get to the emergency lifeboats. Shortly after they ejected from the crippled ship, the explosion occurred. Picard reads a portion of the Judge Advocate General's report where he suggests that the surviving officers and crew are involved in a cover-up and further investigation is warranted. Picard informs Riker that the aforementioned investigation never happened and that the report was buried by Starfleet Intelligence. Riker tells Picard that he is under Pressman's orders not to discuss the matter.
In the Devlin system, the Enterprise encounters a Romulan Warbird, clearly searching for the Pegasus as well. Picard and Sirol (Michael Mack), the Romulan captain, acknowledge each other's presence, creating a tense situation. Though the Enterprise sensors locate the Pegasus buried in a large fissure in an asteroid, Picard orders them to move on to lure the Romulans away. With the Romulans distracted, the Enterprise returns, enters the fissure, and finds that the Pegasus is partially fused with the asteroid. Pressman and Riker transport to the Pegasus and recover an experimental device that the ship was equipped with. Pressman is elated to find it, but Riker is less than enthusiastic. He informs Pressman that he won't allow him to restart the experiments that led to the mutiny and the current state of the Pegasus. They return to the Enterprise when they learn the Romulans have closed the fissure, trapping the Enterprise inside.
Sirol refuses to open the fissure and gives Picard and his crew the option of taking asylum aboard the Warbird; this would allow both the Enterprise and the Pegasus to be captured by the Romulans. Riker proposes using the device they took from the Pegasus—a phase-shifting Federation cloaking device that would allow them to travel through the solid matter of the asteroid and escape. Pressman is furious at the breaking of Riker's silence, but Picard reprimands Pressman, pointing out that the development of a cloaking device by the Federation is a violation of the Treaty of Algeron. Pressman attempts to take command of the Enterprise, but the crew refuses to obey his orders. Picard directs the cloaking device to be installed on the Enterprise and used to escape the asteroid. The cloak is then dropped in full view of the Romulan ship against Pressman's protestations, and Picard informs Sirol that the Federation will be contacting the Romulan government about the incident.
Picard orders Pressman to be arrested for violating the Treaty of Algeron. Riker insists that he be arrested as well, and Picard reluctantly agrees.
Visiting Riker in the brig, Picard informs Riker that Pressman and four other high-ranking officers in Starfleet Intelligence have been arrested pending a court-martial. He notes that Riker's record will be affected by this incident but coming clean will support his case. Picard tells Riker he still is proud to have him as a First Officer and releases him, then the two head to the bridge.