When the Darling children were born, they were left in the care of nursemaids. From their tiny perspective, the nurses are vicious giants capable of horrible acts. But the four Darling children – Wendy, John, Michael and Peter – don’t worry much because Fairies visit their nursery regularly, making them feel safe. (Early in his life, young Peter Darling made the dreadful mistake of falling out of his carriage and was swept away with the garbage!)

One evening, Mr. and Mrs. Darling come to bid Wendy, John and Michael good night. They are on their way to a party, leaving the children in the care of their new nursemaid, Liza. Wendy dreams that she is dancing among the shadows. Her dream turns into a nightmare, but Wendy is saved by a mysterious shadow that seems somehow familiar to her. She is awakened from her dream by a bright light that darts about the room and into her dresser. As she investigates, a wild boy with a mane of great red hair bursts into the room. He is the same age as Wendy, and introduces himself as Peter Pan. John and Michael wake up, and begin to play with Peter. The dresser drawer begins to rumble, and Peter explains that it is a tiny fairy named Tinkerbell. Then Peter and the three young Darling children set off for Neverland.

Peter Pan returns to Neverland with Wendy and the boys in tow. The Lost Boys beg Peter to recount his adventures, and he dazzles them with wild stories. They quickly welcome the Darling children into their tribe. They ask Wendy to be their mother, and she happily obliges. Neverland becomes the scene of a raucous, joyous celebration and they leave to show the Darlings the mysterious lagoon.

Captain Hook and his pirate crew plot to capture one of the enchanting mermaids. They capture the most beautiful mermaid, but her cries quickly call Peter and the others into action. A great battle ensues, with the Lost Boys ultimately prevailing.

The Lost Boys make their way into their hideout and prepare for bed. Wendy reflects longingly on her home and the parents she has left behind. The Lost Boys decide they want to visit her homeland. Unable to understand why Wendy is unhappy, Peter becomes furious, and throws them all out.

The pirates kidnap the Lost Boys and the Darling children, one by one, as they leave the hideout. Captain Hook personally greets Wendy and begs her sympathy by showing her a film of his childhood, in which his awful schoolteacher beat him on the wrist every time he made a mistake. His hand eventually mangled into a hook shape. (This is actually not a film, but a play – a ruse in which Hook has his own son, James, stand in for him!) Wendy is much too smart, however, to fall for Hook’s ploy, and the pirates tie her up and bring her back to the ship. Hook then sends his son James to Peter Pan’s hideout to tempt him into a game of hide and seek. James eventually succeeds in luring Peter from his hiding place and leads him to a potentially terrible fate.

Back at the pirate ship, as the pirates dance wildly to celebrate their victory, James contemplates his nefarious deeds. Hook tries to lure the Darling children into joining his crusade, but they refuse. He ties them up and abuses them with tales of the horrible things he will do to them. Hook, who hates all children, even mistreats his own son James, as do the rest of the pirates. Hook becomes so distracted with his soliloquy that he doesn’t notice when Peter sneaks on board.

A battle begins, and the Lost Boys quickly gain the upper hand. Sensing the possibility of defeat, Hook tries to escape with Wendy, but Peter intervenes and challenges him to a duel. Hook fights arrogantly, making a great show of his ease, but Peter ultimately triumphs over him – with some unexpected assistance.

The Darling children go home and reunite with their parents. Although Peter returns to try to lure Wendy back to Neverland, she refuses. She takes her place in her mother’s rocking chair, reflecting on her adventures with Peter as she grows older and has children and a family of her own.