Ayear before his death, Sir Bowen visits the cave of his long-dead dragon friend Draco and finds an egg. He entrusts it to the monastery of his friend Brother Gilbert. Aware of a prophecy stating that "a dragon's heart could doom mankind when a two-tailed comet blazed across the night sky", the friars pledge to hide the dragon until the comet passes, with Friar Peter protecting and teaching him for 20 years. The dragon's care soon falls upon a young and grumpy monk named Mansel, Matt Hickey.
Geoffrey, (portrayed by Christopher Masterson), an orphaned stable boy who dreams of becoming a knight like Bowen, lives at the monastery doing menial chores. Meanwhile, the king, Ken Shorter, makes Osric his chief adviser. Osric, intent on preserving the Old Code but secretly corrupting it, begins poisoning the king's mind and plotting to seize the throne. His first act is to divide people by color-coded tunics that mark their social standing, warning of punishment for those who refuse to wear them. Two Chinese citizens from Hebei, Master Kwan and his son, arrive and ask Friar Peter what he knows about dragons. According to the stars, a new dragon was born, and the comet would arrive in eight days; they want to prevent the prophecy and confirm if the dragon has a pure heart. Geoffrey tricks Mansel into doing hard labor and uncovers Drake, the hidden dragon; the two quickly become friends despite initial fear. Friar Peter dies suddenly the next day, and Drake steps outside for the first time.
Four days before the comet, the two Chinese learn of Drake's existence. Knights surprise Geoffrey, and he discovers the Chinese son is actually a woman, Lian, China's empress in disguise. The knights threaten Geoffrey, whom they catch without his tunic, forcing Drake to take his first flight to rescue him and revealing Drake to the kingdom. Osric names Geoffrey and Drake as the kingdom's protectors against the invading Teregoths and takes Geoffrey under his wing. After testing Drake's purity, Master Kwan begins teaching him to wield his dragon abilities, including an ice-breath that only a few dragons master. Lian reveals to Geoffrey that a rogue dragon, Griffin, betrayed the dragon’s honor code and led a rebellion until virtuous dragons captured him and placed his heart in an amulet. Fearing that all dragons might share Griffin’s nature, the Chinese emperor Kuo-fan ordered Eastern dragons killed; Drake, therefore, is the world’s last dragon.
On the prophesied day, Kwan and Lian are captured and jailed. Osric takes Geoffrey and Drake to battle a group of Teregoths at a border house. Osric fakes a fatal blow and asks Drake to give him half his heart, but Geoffrey sees through the deception and stops Drake. Osric tries to hold Geoffrey hostage but fails. Drake rallies an escape and masters firebreathing to save Geoffrey. Kwan, Lian, and Mansel escape the castle dungeon, heal the king, and confront Osric, who recognizes Lian and the amulet. Kwan discerns Osric's true identity and orders the amulet burned. Osric recovers and throws a knife at Lian to punish her for her ancestor's sins, but Kwan intervenes and dies.
Geoffrey and Drake arrive as Osric claims to have revealed the true meaning of the Old Code as a means to control the weak. Osric bares his true self: one dragon escaped Bowen's wrath, fled east, and sought revenge before noble dragons stopped him and cursed him to live as a human. He cuts his chest open with Lian's knife and takes the Heart, as the comet appears, revealing himself as Griffin and exposing the prophecy as his plan. Resuming his dragon form, Griffin invites Drake to join him in humanity’s conquest. Recalling Griffin would have cost him his soul if Geoffrey hadn’t intervened, Drake refuses and challenges Griffin. After a short but fierce duel, Drake masters ice breath and freezes Griffin to death, Griffin’s corpse shattering before the comet passes.
One of the ice shards stabs and kills Geoffrey, so Drake offers part of his heart to revive him. The Old Code is restored; Lian returns to her royal duties for a time; and Mansel is entrusted with Brother Gilbert's scrolls, finally achieving the life of prayer and devotion he sought. Geoffrey and Drake become brothers, at last finding the family they both wanted.
