"Sailor Costigan and the Swami" begins with Steve Costigan feeling wronged by a newspaper article that misrepresents an incident involving him and a swami in Batavia. The story recounts how Costigan, having left his ship the Sea Girl in a fit of anger after multiple conflicts, finds himself without money and direction in Batavia.

Encountering the Swami Ditta Baksh, Costigan is persuaded to visit the swami's mystical establishment, the Castle of Dreams, where he receives a vague prophecy involving his success in Singapore. Despite lacking funds, the swami convinces Costigan to promise him half of his future earnings from a fight club he is destined to start in Singapore.

With only a dubious good luck coin, Costigan uses his wits in a dice game to secure travel funds to Singapore. There, despite numerous setbacks and a profound lack of experience, he organizes a fight night at the dilapidated Pleasure Palace Arena. The event, marked by mismanagement and chaos, spirals out of control, ending in a near-riot with participants and spectators dissatisfied and enraged.

In a twist, the old man from Costigan's ship, disguised to monitor Costigan's ill-advised adventure, reveals himself amidst the disaster. The revelation comes as a typhoon strikes, demolishing the arena and nearly drowning Costigan, the old man, and Costigan's faithful dog, Mike. The trio survives by clinging to debris in the storm's aftermath.

The story closes with Costigan confronting the swami upon his return to Batavia, only to discover the swami's deceit as part of a plot by another fighter to secure better contracts. As Costigan attempts to exact revenge on the swami for his manipulation, the police arrive, adding to the ongoing turbulence of Costigan's life.