The plot revolves around a preteen boy, Douglas J. "D.J." Walters (Mitchel Musso), who spends lots of his free time spying the house (which bears resemblance to that of Norman Bates from the Hitchcock film Psycho) across the street and its owner, Mr.Nebbercracker (Steve Buscemi), a crotchety old man who terrorizes anyone who steps anywhere on his lawn or close to his house.
Even though DJ has seen Nebbercracker take several toys from kids that have stepped in his grounds, his parents (Catherine O'Hara and Fred Willard), dismiss his comments easily as "kid talk". They then leave town for the weekend for a dental convention.
Charles "Chowder" (Sam Lerner), a chubby teenage boy who is DJ's best friend, shows up with a new basketball to play with DJ. When they lose it in Nebbercracker's lawn, DJ ventures there to recover it, thinking he might be asleep. However, he appears and grabs DJ lifting him and screaming at him. This causes him to collapse, seemingly dead, causing DJ to feel responsible. While Nebbercracker is being carried away by the paramedics, he drops a gold key on his lawn, which DJ scoops up.
DJ's apathetic Punk babysitter Elizabeth (Maggie Gyllenhaal), or "Zee" as she prefers to be called, arrives taking over the house and sending DJ to his room. At night, DJ gets a call apparently from Nebbercracker's house. Also, Zee's boyfriend, Bones (Jason Lee), comes over to the house and start making fun of DJ, scaring him.
After they leave, DJ calls Chowder and they agree to meet at a construction lot. As he leaves, he overhears Zee and Bones talking about Nebbercracker, and how he took a kite from Bones when he was a 10 year old. Bones also tells of how he has seen the old man speaking to his house and about a legend around town that he fattened up his wife and ate her. However, Zee ends up kicking him out after he pounces on her.
A drunk Bones goes over to Mr. Nebbercracker's house and rants at it while stepping on the lawn and ripping the grass off it. As he does it, the door opened revealing Bones' "awesome kite". He attempts to retrieve it, only to be swallowed up by the house.
After DJ meet Chowder, they decide to investigate the house. Chowder goes up to it, and tries to ring its doorbell and run, but the house comes to life and attempts to eat him. They run back to DJ's house and spend the night watching across the street.
The next morning, a girl named Jenny Bennet (Spencer Locke) comes up to DJ's house and sells Zee some Halloween chocolates. After giving the kids the chocolates, they see the same girl going to Mr. Nebbercracker's house to sell too. The boys run out to tell her to go away, but the house tries to eat her as well. However, DJ and Chowder manage to catch Jenny before she is eaten. When Zee sees them outside she goes out but doesn't believe anything and drives off to look for Bones.
Scared by what happened, they return to DJ's room where both kids try to impress Jenny, pretending to be older and more mature. As they keep watching the house, they see how a small dog is swallowed when he is about to pee on the lawn. Jenny, shocked, decides to send for the police. The police officers Landers and Lester (Kevin James and Nick Cannon respectively) do not believe their story, mainly because the house doesn't react to any teasing while the cops are in front of it. If anything they get in trouble because DJ attempted to make the house move by throwing a rock at it.
The children then go to an arcade and talk to a video-game addict nicknamed Skull (Jon Heder) looking for advice. They learn that the house is actually a monster known as "domus mactibilis" (deadly home in Latin), which is created when a human soul merges with a man-made structure, such as a house. They conclude that the house is Nebbercracker back from the dead and that the only way to 'kill' the house is to destroy its heart which Skull reveals is its only weakness. Upon returning to DJ's house, the three draw out a plan to destroy the house, after deciding that the furnace is the heart. They conclude this since smoke has been coming out of the chimney ever since Mr. Nebbercracker died.
The kids devise a plan to make a dummy using a vacuum, and filling it with cold medicine stolen from Chowder's father's pharmacy intending to "drug" the house. As the house is about to swallow the dummy, the cops arrive again prompting the house to "hide" again. Officer Landers decide to take the three kids to jail after discovering the stolen medicines. After putting them in the car, Lester hears a sound from inside the house and the two go investigate it. As they approach, a tree disarms Lester and the house swallows him. Seconds later, it also devours Landers. The kids watch, horrified, and the house soon also eats the police car, though the kids survive by jumping out the broken back window.
As the group is trapped inside the house, they notice it's asleep probably, assuming that it had gotten rid of the kids. They start to explore the house, finding boxes of explosives (indicating that Nebbercracker used to work in demolition), a pair of binoculars on the end of an extender facing DJ's house (meaning that he was watching DJ just like how DJ was watching him), and pictures of a very large woman, among other things. They conclude that Nebbercracker did have a wife. As they descend to the basement they find the stash of stolen toys Nebbercracker has taken from kids. They also see a locked circus-style cage. DJ opens it with the key the old man had dropped previously and they see the body of the wife covered in cement. She was once known as Constance the Giantess, and Nebbercracker had built a shrine around her after she died.
When DJ trips and lands on Constance's body, revealing her skeleton, the house wakes up and starts attacking the kids. However, they manage to escape as they force the house to "vomit" them outside by pulling a large lamp in the foyer that the house apparently uses as its uvula. As they are returning home, they see Nebbercracker being brought back to his house, with an arm in a sling. DJ confronts him and tells him how he knows about Constance. Nebbercracker breaks down and reveals his story.
Nebbercracker tells of how he met Constance (Kathleen Turner), a very obese lady who was an unwilling member of a circus freak show, and fell in love with her. After helping her escape they moved to a new land and he started building the house she always wanted. However, children taunted her for her weight and threw things at her, making her hate children. One day, as a consequence to her attacks, Constance lost her footing and as she fell from the edge of the foundation of the house she grabbed the lever of a cement mixer, which covered her in cement after she fell several meters below to her death.. A saddened Nebbercracker finished the house because he knew she would have wanted that.
Apparently, after Constance's death, her spirit possessed the house she wanted to see finished, further attacking any child who approaches. To protect the children from the wrath of his house, Mr. Nebbercracker pretended to be a child-hating old man to keep them away from the house — especially during Halloween. However, Nebbercracker feels it is time for the house to be destroyed. The house overhears, and becomes very angry attacking him and the kids.
As they flee from the now-walking house, they run to the construction lot where Chowder and DJ met earlier. Reluctantly, Nebbercracker attempts to throw a stick of dynamite inside the house, but he fails. Chowder then attacks the house with a backhoe saving Nebbercracker. this destroys the house's structure, but since the chimney is intact (which DJ realizes is the heart not the furnace after all), the body rebuilds itself, but as a mangled pile of wood and bricks with broken eye-windows. DJ then takes the dynamite and climbs with Jenny to the top of a crane to throw the stick down the house's chimney. As they attempt to do it, DJ is scared and doesn't think he can do it, but Jenny kisses him to encourage him.
DJ falls from the crane, clinging to the hook at the end of the cable. As he swings forth he throws the dynamite down the chimney, and as he swings back he grabs Chowder who was being attacked below, and they jump into a trench to protect from the explosion which destroys the house and since the chimney was destroyed this time it doesn't regenerate as its heart is gone. As the trio reunite, they see Nebbercracker dancing with the spirit of Constance as he let goes of her and she fades away. DJ apologizes to him and Nebbercracker thanks him for freeing him and Constance.
The film ends with the kids returning to the hole where the house was, and Chowder, DJ, and Jenny helping Nebbercracker return all the toys the house had taken from kids. Jenny is then picked up by her parents and she says that they should hang together again sometime. Chowder gets his ball back from Nebbercracker and after playing ball for a minute the two decide to go trick-or-treating after all.
During the credits, it is shown that everyone that was eaten by the house, including the dog, steps out of the basement bewildered but unharmed, and that Bones and Zee are not together anymore, since she has decided to go out with Skull. Bones doesn't care, as he has his long-lost kite back. Officers Landers and Lister decide to spend the rest of the night "inspecting" candy to shake off their little "experience" of being eaten. In the end, the house comes back to life, reminiscent of the conclusion to Clive Barker's "The Thief of Always."
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