The dark sorceress Nimueh casts a spell on a dragon egg she throws into the castle's water. The next day a plague causes people to die, their skin turning white with dark blue veins. When King Uther orders Prince Arthur to search all Camelot for the sorcerer he believes to have caused the epidemic, only a magic trick saves Merlin from having his book found. When Gwen's father exhibits symptoms, Merlin waves Gaius's warning by curing him. Arthur reports the recovery, and Uther orders her execution at the stake. Merlin tells Gwen's caring mistress, Morgana, only Arthur can help him fight the monster (an afanc), which they search for in the dragon's cave.

A black knight crashes Arthur's coming-of-age ceremony, throwing down the gauntlet to any knight who will fight him, killing all who do, one day at a time. Gaius discovers he is Uther's dead brother-in-law, now a wraith summoned from the grave by the witch Nimueh, seeking revenge for the death of his sister who died giving birth to Arthur. His intent: to eventually fight and kill Uther. Merlin learns that only a special sword burnished with a dragon's fiery breath can kill the knight. To that end, he asks Gwen for the best sword her father ever forged (the sword later known as Excalibur) and asks the imprisoned dragon to burnish it. The Dragon, however, tells Merlin that, once created, only Arthur should wield it, as evil will come of it otherwise. Merlin gives his word. Unfortunately, Uther has Arthur drugged and locked in his room, preparing to face the wraith himself. With Excalibur in his hand, victory might come but would leave Uther in control of a powerful magical weapon.