Moondragon, possessed by the Dragon of the Moon, enters the Defenders' base and threatens to destroy them all. She is still angry at them all for their past treatment of her.
However the Interloper's presence gives her pause, since he helped to defeat the Dragon the last time it was on Earth. They attack, but only the Interloper has any effect. Then he has Gargoyle mix his fear-creating bio-mystical bolts with Manslaughter's madness, and send it into Moondragon, who fears loss of mental control above all. This makes her weak enough for the others to affect her. After a kiss from the insane Manslaughter, she teleports away.
Interloper describes how, years ago, Manslaughter tracked him down. Impressed, Interloper trained his mind, even though he had evil potential. He also describes the last time he fought the Dragon, alongside King Arthur. Interloper is an Eternal and the Dragon is the enemy of his race.
Meanwhile, Moondragon is in despair over her loss of control. The Dragon tries to tempt her into giving herself up even more fully in return for more power. It knows of another being who can provide power--the newly-arrived Beyonder. She calls him, and he appears. He gives her power so she can be his apprentice. But after he leaves, the Dragon once again takes control.
In an unexplained single panel, Mr. Fantastic calls the Defenders, but gets no answer. (This is tied in to the first issue of X-Factor.)
Interloper says they need to hunt Moondragon down and kill her, but the Defenders want to leave her alone. She shows up and pretends to be herself again, but then separates Isaac's soul from his body and transforms it into its natural demon form, which attacks the Defenders. They fight back, but a giant blast destroys the Aerie. Candy is teleported away, and Angel follows. Moondragon has tied her up, with a knife at her throat; however she heals Angels eyes so he can see her. Meanwhile Beast finds that Moondragon is letting Chris Larmouth's body thaw out, and thus becoming vulnerable to the slime monster. Moondragon shows Bobby the two comatose kids that Cloud based her bodies on, with their medical tents punctured.
Then they all find themselves in a strange dimension where the other Defenders are challenging the Dragon, but with portals to the vulnerable people nearby. They can either help the people, or fight, not both. The other Defenders all attack, but the 3 ex-X-Men all hesitate. Interloper explains that they can only win by joining life forces, but they will die as a result. Valkyrie joins him full-throatedly, and Andromeda after some hesitation. Manslaughter almost refuses, but then joins for the heck of it.
The sacrificing Defenders start to defeat the Dragon with their life forces, and Beast, Angel, and Iceman go to rescue the helpless humans. After they do, they rush back, only to find that the Dragon is gone, and Moondragon, Interloper, Manslaughter, Valkyrie, Andromeda, and Gargoyle's body are pillars of ash. The rescued humans walk out, fully healed of any sickness or injury. Moondragon healed them as she was purified by the sacrifice.
Sassafras runs out, and the remaining Defenders hope to be worthy of their friends' sacrifice.
Note: While most of the remaining members of the Defenders disbanned and formed X-Factor, the killed members of the Defenders would later return as the Dragon Circle in the pages of Stranges Tales Vol.3 issues 5, 6 and 7 and later on in Doctor Strange: Sorcerer Supreme issue 3 (1989).