There's nothing complex about the plot: a young couple is haunted by a demon. Boring? Nope The film took a week to shoot and director Oren Peli spent $15,000 and a great deal of creative effort on it.
The first screening of the movie was in 2007 at the Screamfest Film Festival. It was also shown at the Slamdance Film Festival in January 2008. You see the movie through the lens of the camera the couple has set up for taping paranormal activity.
Oren Peli's own experience with strange household phenomena were the basis for the film. Peli's own fear of the supernatural informed his creation of this movie. Peli spent a year getting his own house ready for filming by adding furniture, carpet, and paint, and building a stairwell. He researched paranormal activity too. From just the first few minutes, you'd think that the movie wouldn't be frightening at all.
Keep watching.
This was Peli's plan: creating an atmosphere from which the fear builds and not relying on CGI or other special effects. With $15,000 and a hand held video camera, Peli created a horror masterpiece. There was no actual script, just outlines of the various scenes. The actors improvised based on the description of scenes.
Dreamworks planned to remake the movie and release it and the original version on the DVD. The contract with Peli, however, included a one-time screening of the original to see audience reaction. The audience made it clear that no remake was necessary.
Watch Paranormal Activity online and just see if you sleep that night.