Workers in a fish canning plant, Laurel & Hardy enjoy their day off by fishing from a wharf.  While thus engaged, they are approached by Walter Long, captain of a reputed ghost ship, who is having trouble rounding up a crew.  At a dollar a head, they agree to shanghai a crew for him—which they do with remarkable success, only to wind up shanghaied themselves.  The crew naturally wants to exact vengeance, but with the ferocious captain as protector for the pair, they have no opportunity aboard ship, and wisely Laurel & Hardy never leave the ship when it reaches port.  Always enraged when the subject of the ghost is raised, Captain Long promises dire results to any man who even mentions the word ghost:  He'll twist his head so that when he's walking north he'll be looking south!  Carefully, Laurel & Hardy contain their fears, but one night accidentally fire off a revolver, and believe that they have killed their cabin mate.  Actually, he's just dead drunk, as usual.  To conceal their crime, they toss him overboard—but, revived by the water, he clambers back on board again—to fall into a vat of whitewash.  The ghostly apparition causes panic among the crew, including Laurel & Hardy, who blurt out the fateful word "ghost" to the disbelieving captain.  True to his word, he performs the neck-wringing operation, leaving them in "another fine mess!"

The plot of The Live Ghost is more than a little contrived, but it does allow for some exceptionally good individual sequences, while the settings of sleazy waterfront saloon and mist-shrouded ghost ship provides opportunities for better and more carefully executed camerawork than was usual in their later shorts.  The opening sequence contains some good, lively slapstick as Laurel & Hardy "recruit" their crew.  Laurel goes into the saloon, bag of eggs in hand, and bets a likely-looking customer that he can't place the egg in his mouth without breaking it.  The confident sucker carefully places the egg in his mouth, whereupon Laurel brings his fist up under the victim's jaw, and leads him a merry chase into the street outside, where Hardy is waiting with frying pan at the ready.  The unconscious bodies are dumped unceremoniously into the hold of the ship—the long, pregnant pause between the actual dumping and the heavy thud as the body hits the floor indicating that it is a perilously deep hold indeed!  Ultimately, for a change of pace, Hardy ventures into the saloon.  His chosen victim is Charlie Hall, who unfortunately has witnessed Laurel' s procedure.  "Let me see you do it! " he suggests to Hardy, who innocently agrees—with the expected result!