A rash of crime follows the publicized death of Sherlock Holmes. Inspector Lestrade even admits that he misses Holmes, and he berates Watson for allowing Holmes to fall. Holmes returns to Baker Street disguised as a postman bearing a package for Sherlock Holmes. He mutters about Holmes not being very clever, and provokes Watson into slugging him!
After Watson hits him, Holmes laughs and tells Watson who he is. Watson is both overjoyed that Holmes is alive, and hurt and angry that Holmes tricked him. Holmes explains that it was his plan to investigate the "Pajama Suicides" incognito. He is convinced that the victims were driven to suicide, and he suspects a woman -- "a female Moriarty ... clever, ruthless and cautious." He believed that the criminals would become careless if they thought he was dead. Holmes has discovered an important clue: all of the victims were fond of gambling.
Disguised as Rajni Singh, an Indian just arrived in London, Holmes visits a casino. He meets a beautiful woman there named Adrea Spedding. Together they manage to lose all his money, and he says his life is ruined. Miss Spedding offers him a solution to his financial woes; borrow on a new life insurance policy that a friend of hers will issue right away. All he needs to do is name her friend as the beneficiary.
When Rajni Singh visits her apartment, Adrea Spedding quickly figures out that he is in fact Sherlock Holmes. That night, as "Rajni" sleeps, a spider crawls through the ventilation into the room and over the pillow to the victim. Holmes is of course prepared and kills the spider. He consults an expert and learns that the venom from this particular spider causes excruciating agony -- so much that the bite victim is driven to self-destruction. But Holmes still lacks the proof that Adrea Spedding is behind the murders, and there are some unexplained footprints -- small and child-like.
Later, Adrea Spedding visits 221B Baker Street and tries to throw Holmes off the right track by bring a child with her. Adrea tries to poison Holmes by having the child throw a candy wrapper in the fire as they are leaving -- a candy wrapper containing "Devils Foot," a rare vegetable poison from Central Africa. The room quickly fills with smoke, and Watson is overcome, but Holmes manages to get himself and Watson to a window, and fresh air, just in time.
The clues lead Holmes and Watson to the home of a collector of rare and exotic insects, whom Holmes believes supplies the deadly spiders to Spedding. But Holmes finds that the man has been murdered and replaced by an impostor. The impostor escapes. Holmes discovers the skeleton of a pygmy and realizes that it was a pygmy, not a child, who crawled through the ventilation shafts to release the spider into the victim's room.
Having traced the pygmy to a carnival, Holmes and Watson spot Adrea Spedding entering a fortune teller's booth. Holmes follows, but Spedding is waiting for him and he is captured. Knowing that Watson and Lestrade are out front shooting at the figures in the shooting gallery, Spedding's pals tie Holmes behind a Hitler figure, hoping that Watson will unwittingly shoot his own friend. Fortunately, Holmes escapes in time, and Spedding and her friends are arrested.
The Spider Woman is allegedly based on The Sign of Four, but the only similarity I can see is that fact that a pygmy was involved in the murder. (As you may remember from The Sign of Four, an aborigine from the Andaman Islands killed Bartholomew Sholto with a poisoned dart from a blowpipe.) The use of the poisonous powder in the fireplace is of course taken from "The Adventure of the Devil's Foot" (the story of the Cornish Horror). Rathbone gives his usual, excellent performance as Holmes in this highly entertaining mystery.
A later film, The Spider Woman Strikes Back (1946), was made with Gale Sondergaard repeating her role as the Spider Woman, but did not include Rathbone.
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