The film stars Boris Karloff and Jack Nicholson, the latter of whom portrays a French officer who is seduced by a woman who is also a shapeshifting devil.
The film is sometimes linked to Corman's Poe cycle, a series of movies based on the works of Edgar Allan Poe; however, The Terror is not based on any text written by Poe but relies on the Poe theme of a deceased wife that continues to haunt the husband such as in "Ligeia" and "Morella" which were part of the Cycle. The movie has become infamous because of the circumstances including its chaotic production and disjointed narrative, including that all of Boris Karloff's scenes were shot in two days, the long time it took to complete, the number of people who worked on it that became famous, and the part the film played in the financing and production of Targets (1968), directed by Peter Bogdanovich and starring Karloff.
Corman wrote in his memoirs that The Terror "began as a challenge: to shoot most of a gothic film in two days using left-over sets from The Raven. It turned into the longest production of my career – an ordeal that required five directors and nine months to complete. But like Little Shop [of Horrors], it's a classic story of how to make a film out of nothing."

In 1806, André Duvalier, a French soldier lost in the Confederation of the Rhine, is saved by Helene, a young woman who bears a resemblance to Ilsa von Leppe, the late wife of Baron von Leppe who had died 20 years earlier. André sets out to investigate Helene's true identity and learns the Baron's darkest secret: after he found Ilsa with another man, the Baron killed his wife while his servant killed her lover.
Over the preceding two years, the Baron has been tormented by Ilsa's ghost, who has beseeched him to kill himself so that they can be together forever. After much hesitation, the Baron decides to do so and atone for his crimes. Unbeknownst to him, Ilsa's ghost is being commanded to haunt him by a peasant witch named Katrina.
After preventing the Baron from killing himself, André and Stefan, the Baron's majordomo, capture Katrina and force her into compliance. Katrina reveals herself to be the mother of a man named Eric, whom she believes was killed by the Baron 20 years earlier. She hopes to avenge Eric's death by damning the Baron's soul to Hell. Stefan reveals that it was the Baron who had died, not Eric, and that Eric felt so guilty about it that he took the Baron's place (thus explaining why the Baron had never left the castle in 20 years). Over the years, Eric has convinced himself that he is truly Baron von Leppe.
Realizing her error too late, Katrina goes with André and Stefan to stop Eric from flooding the castle crypt. Katrina's deal with the Devil, however, makes her unable to walk on consecrated ground and she ends up burning to death after being struck by lightning.
At the von Leppe castle, Eric floods the crypt as Ilsa's ghost attempts to kill him and Stefan struggles to stop her. By the time that André gains access to the crypt, it is already starting to cave in and he is only able to save Helene. The two share a moment outside the castle before Helene turns into a rotting corpse.