The Enterprise is ordered on a priority mission to collect a member of Starfleet Intelligence, Admiral Eric Pressman, former Captain of the USS Pegasus where Will Riker first served after graduating from Starfleet Academy. Pressman informs Jean-Luc Picard and Riker that intelligence has located the Pegasus in the Devolin system near the Romulan Neutral Zone. Though 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 instructed Riker to remain silent until the current mission is completed.
Later, Picard summons Riker to his quarters to ask him about a discovery he has just made concerning the Pegasus. Prior to the assumed destruction of the vessel, there was a mutiny—an event that Picard remarks is "unthinkable", yet one that for all its seriousness Riker has never mentioned. He further remarks that obtaining the report was no small feat, considering it had been classified by Starfleet Intelligence. Riker offers his version of the events: that when the Pegasus' warp core overloaded, several officers took up arms against Pressman, fearful that the Captain was out of control. Riker, then only seven months out of Starfleet Academy, pulled his own weapon in the Captain's defense, but they were overwhelmed and barely managed to get to the emergency lifeboats. Shortly after ejecting from the crippled ship, the explosion occurred. Picard listens to Riker's account, then reads a second portion of the Judge Advocate General's report where he suggests that he believes that the surviving officers and crew are involved in a cover-up, and that further investigation is warranted. Picard informs Riker that the aforementioned investigation never happened, and that the report was made and quietly buried by Starfleet Intelligence. He presses Riker for the truth. When Riker suggests that he speak to Pressman about the matter, Picard loses his patience and barks that he is taking up the matter with him. Riker tells Picard that he is under Pressman's orders not to discuss the matter. Picard acquieses, acknowledging that he cannot force Riker to disobey orders from a superior officer, so he will simply have to trust Riker's confidence in Pressman--adding that if he finds that trust to be misguided, then he will be "re-evaluating the command structure" of the Enterprise.
In the Devlin system, the Enterprise encounters a Romulan Warbird, clearly searching for the Pegasus as well. Picard and Sirol, the Romulan captain, acknowledge the others' 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 in the asteroid, 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 which Riker thought was destroyed. Pressman is elated to find it, but Riker is less than enthusiastic. He finally informs Pressman that he won't allow him to restart the experiments that led to both the mutiny and the Pegasus' current state. When Pressman remarks that he's not the same Riker who took up arms to defend him 12 years ago, Riker agrees, adding that he's had time to think about it, and that were it his to do all over again, Pressman might find himself on the business end of Riker's phaser. Pressman ends the argument by reminding Riker that he's still under the Admiral's orders not to tell Picard anything. They quickly return to the Enterprise when they learn the Romulans have closed the fissure, trapping the Enterprise inside.
Sirol refuses to open the fissure, and instead 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 a solution 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 with regard to the entire incident.
Picard orders Pressman to be arrested for having violated the Treaty of Algeron. Pressman threatens that he has allies in Starfleet, but Picard is unmoved. As Pressman is led off the bridge, Riker insists that he be arrested as well and Picard agrees.
Visiting Riker in the brig, Picard informs Riker that Pressman and four other high-ranking officers in Starfleet Intelligence have all been arrested pending a court-martial, and that his own role in the affair will be scrutinized closely. He also notes that Riker's record will be affected by this incident but that his having come clean at last will help. Picard tells him he still is proud to have him as a First Officer, releases him, and the two head off to the bridge together.