Classmates Alice, Julie, and Reika wonder if that was Lain they saw at the nightclub Cyberia. To find out, they invite Lain to go with them to the club.

Alice, Julie, and Reika are minor celebrities in their class after they witness a shooting at The Cyberia. Lain is given a black-market chip for her computer, but it seems she is also being followed.

Some players of a Wired game called PHANTOMa are dying suspicious deaths. Lain investigates, but her growing interest in the Wired worries her father, as well as classmates Mika and Alice.

Young children are acting strangely, arms outstretched and silently staring at the sky. A shocking vision suddenly appears in the skies; it looks like Lain! Determined to get to the bottom of this, Lain's investigations finally bring her to the creator of KIDS -- but what she discovers is not what she hoped for.

As the Knights activities make the evening news, a strange man named Nazumi wanders the city with machines strapped to his body. People on the WIRED are asking: ""Who is Lain"". Meanwhile, the two MIB agents take Lain to the Techibana offices where Lain's identity is challenged by a man; how well does she know her parents, her sister, herself? Can Lain answer him?

Lain struggles with her identity. Is she a human being, or just a hologram? And are the Knights responsible for the Evil Lain? Lain decides to deal with the Knights once and for all.

Troubled by what she saw, Alice decides to visit Lain at home and find out what is going on. Meanwhile, the two MIB agents receive a terrible shock and Eiri reveals his real motive for removing the barrier between the real world and the WIRED.