It begins with an Endless family meeting descending almost immediately into an Endless family argument. Desire angers Morpheus by taunting him about his intolerant treatment of a former lover, whose story formed the prologue to the second collection, The Doll's House. Death angers him further by agreeing with Desire, but Morpheus' immense respect for Death leads him to agree, eventually, with her assessment.
Morpheus leaves his realm to travel to Hell, where he imprisoned his former lover, Nada, to release her. Having left Lucifer, lord of Hell, very angry with him the last time he ventured there (in the first collection, Preludes and Nocturnes) Morpheus is apprehensive about the task. He sets about it, wanting to do what is right, but prepared for a confrontation which he knows he may lose. Preparing for his possible death, he says goodbye to the dreams, meets and names Daniel Hall, finally Hob Gadling in his dreams.
Cain is sent by Dream to inform Lucifer of Dream's impending journey to Hell. Recognizing that Cain is protected by God's Mark, he proceeds to mock and torture Cain as they briefly travel through Hell.
Morpheus apprehension is somewhat misplaced. As he arrives, Lucifer is busy closing down Hell. Morpheus follows Lucifer around in a state of some bafflement before Lucifer finally persuades him this is not an elaborate trick, that he indeed intends to leave Hell, and his obligations as its lord, forever. His final act before leaving is to throw out any demon or damned souls still hanging around, lock all the portals to Hell and cut off his wings; he then hands the key to Hell to Morpheus, to do with as he will. Such action is noted by Lucifer as having the potential to benefit or ruin Morpheus. Note: This issue sets up the basis for the spin-off comic series Lucifer written by Mike Carey.
Morpheus, who has no wish to rule this troublesome piece of real estate, quickly discovers that there are numerous entities who want to control Hell or prevent their enemies from controlling it. Odin wishes to control Hell in order to avoid Ragnarok, and travels to the Dreaming with two other members of the Norse pantheon, Loki and Thor.
Susano-o-no-Mikoto, a storm god of the Shinto pantheon, travels as an individual deity, and not as a representative of Shinto gods. He wishes to add Hell to a new underworld controlled by his family, which has been formed by assimilating other lesser pantheons as well as objects of worship including, he says, Marilyn Monroe.
Azazel, a demon, arrives with two other demons who held great power in the old Hell: Choronzon, here described as the former Duke of the Eight Circle, and Merkin, the mother of Spiders. Azazel had previously ruled Hell in a triumvirate with another demon and Lucifer, although Lucifer tells Morpheus that this was only part of a game he played, and Azazel demands that Morpheus hand him the key. In exchange Azazel offers to hand over Nada as well as the demon Chorozon who had previously fought Morpheus.
Order and Chaos also arrive. Order is in the guise of an empty cardboard box carried by a floating Djinn-like being, while Chaos appears in the form of a small girl in clown makeup. Order offers to trade the dreams of the newly dead, while Chaos simply threatens Morpheus before offering a balloon.
Two representatives from Faerie, Cluracan , and his sister Nuala appeal to Morpheus to give control of Hell to no one. Cluracan offers his sister as a gift to the Dream Lord, in the name of Faerie Queen.
Much to Morpheus's chagrin, the interested parties promptly convene in the castle at the centre of the Dreaming. Here many characters who have parts to play later in the series are introduced, among them, the representatives of Faerie, Cluracan, and his sister Nuala. After much bargaining, wheedling, bribery, trickery, drunkenness, and threatening behavior, Morpheus manages to get rid of Hell without much anger from the other participants: he gives it to a pair of angels sent by God, after Remiel relay a message claiming Hell. Dream then enters Azazel and frees Nada. He apologizes to her, and though he still loves her, she chooses not to stay with him, and he reincarnates her in the body of a newborn baby, telling her that she will always be welcome in the Dreaming in any form that she chooses.
Between these deliberations is the story "In Which the Dead Return; and Charles Rowland Concludes His Education", from issue #25, which takes place at a traditional English boarding school (and borrows elements from the boarding-school story genre) and is used to illustrate the consequences of Hell's closure. Although the two main characters in this tale, the ghosts of two school boys, never appear again in the Sandman series, they later appear as "The Dead Boy Detectives" in Gaiman's Vertigo cross-over story The Children's Crusade, and in a mini-series of that name by Jill Thompson.
The collection ends with Lucifer, sans wings, sitting on an Australian beach, grudgingly admiring God's sunset.