The General Lee is stolen by two pool hustlers who drive it into the pond while being chased by Rosco. Unaware that it wasn't Bo and Luke driving it, he thinks Bo and Luke drowned. Boss Hogg schemes to claim they stole his genuine gold watch and chain and when Bo and Luke hear of this, they figure the only way to prove their innocence is to haunt Boss and Rosco by making the General Lee look like a ghost.

Bo and Luke are suspected of running a smuggling ring when they deliver cars to Augie Detwiler - the owner of the derby in town, but when they are told about the smuggling, they decide to investigate by joining the derby.