In the economically struggling northeastern town of Kingston Falls, many residents are feeling the weight of lost jobs from past decades. Among them is Rand Peltzer, a middle-aged inventor with less-than-successful products, who travels to Chinatown in New York City to find a Christmas gift for his son, Billy. Despite Rand's questionable inventions bringing in little money, Billy, working as a bank teller, manages to keep the family afloat.
While at a local junk shop, Rand stumbles upon a peculiar, furry creature known as a "mogwai" and, despite the elderly owner's reluctance to sell, he secures the creature through a deal made by the owner's grandson. Before the transaction, the boy provides Rand with three vital rules for caring for the mogwai, yet he cryptically avoids explaining their significance.
Billy, who is struggling with car troubles on a cold December morning, obtains help from his friends, Pete and Mr. Futterman, a man who has also faced job loss. After work, Billy is confronted by the town's mean-spirited landlord, Mrs. Deagle, who threatens to have his beloved dog, Barney, put down over a minor accident. However, the day takes an uplifting turn when Rand returns home, presenting Billy with the mogwai, aptly named Gizmo. Rand excitedly explains the rules, revealing the creature's aversion to bright light, the danger of water, and the crucial timing of feeding it.
Unfortunately, an accident occurs when Pete spills water on Gizmo, leading to the birth of more mogwai. However, unlike Gizmo's friendly demeanor, these new creatures display malevolence and chaos, particularly one named Stripe, who quickly establishes himself as their leader. As the night unfolds, Billy's innocent curiosity leads to catastrophic repercussions when late-night feeding results in the mogwai transforming into destructive gremlins.
As chaos erupts in Kingston Falls, the gremlins wreak havoc, causing accidents and destruction throughout the town. Billy and his friends attempt to manage the situation as the creatures multiply and their antics become increasingly dangerous. Amidst the devastation, Billy and his emerging romance with his co-worker Kate deepen as they navigate the perils together, including a heart-wrenching revelation about her tragic childhood Christmas.
In a gripping climax, Billy and Kate devise a plan to trap the gremlins in a local movie theater, leading to a dramatic confrontation that ultimately results in the demise of most of the creatures. However, Stripe escapes, leading to an intense showdown in a department store where Billy must utilize all the knowledge he's gathered to thwart Stripe's destructive plans before it's too late.
In the end, as the Peltzer family reflects on the chaos and destruction caused by the gremlins, they are visited by the wise shopkeeper, Mr. Wing, who admonishes them for their neglect in caring for the mogwai. He takes Gizmo back under the promise that someday, Billy may be ready to assume the responsibility. The film closes with a cautionary note about the unseen dangers that lurk in our technological creations.
