In the present day, Peter Banning (Robin Williams), once the carefree boy known as Peter Pan, has transitioned into a busy businessman who prioritizes work over his loving family, which includes his wife Moira (Caroline Goodall) and their two children, Jack (Charlie Korsmo) and Maggie (Amber Scott). As he struggles to focus during Maggie's performance in her recital of 'Peter Pan,' where she plays Wendy, and fails to attend Jack's baseball game, it becomes evident that Jack is growing increasingly frustrated with his father’s broken promises.
The family’s trip to London, which Peter dreads due to his fear of flying, is meant to visit Granny Wendy (Maggie Smith), who is being celebrated for her charitable contributions. However, during this visit, tragedy strikes when Maggie and Jack are kidnapped. Despite the housekeeper Liza (Laurel Cronin) not witnessing the event, the former Lost Boy Tootles (Arthur Malet) informs Peter that Captain Hook (Dustin Hoffman) is behind the abduction.
As the police vacillate about the legitimacy of the ransom demand, Wendy takes Peter aside, urging him to remember who he truly is, so he can rescue his children. Though Peter is bewildered, dismissing Wendy's words as a consequence of shock, what's to come will challenge his perceptions.
That evening, as he sits in the nursery, a star unexpectedly falls through the window, revealing itself to be Tinkerbell (Julia Roberts), who is determined to aid Peter. However, refusing to go voluntarily, Tink resorts to kidnapping him and transport him to Neverland.
Upon awakening in Pirate Town, Peter finds himself cloaked and surrounded by pirates at the Jolly Roger, where Mr. Smee (Bob Hoskins) presents the notorious Captain Hook, who boasts about his past victories, including the demise of the crocodile that once threatened his existence. With Peter stakes high, Hook expresses his sorrow over Peter’s transformation into an unremarkable middle-aged man instead of his once formidable foe. He pressures Peter to fly up to touch the fingers of his children, promising their safe return if he succeeds. Yet, Peter's fear of flying becomes apparent, and Smee realizes that Peter has forgotten his youthful abilities due to his long absence from Neverland.
In a fit of rage, Hook orders Peter to walk the plank, but Tinkerbell vows to shape him up within three days. After a dramatic tumble into the water, Peter is saved by the enchanting mermaids, and together with Tinkerbell, they venture to meet the new leader of the Lost Boys, Rufio (Dante Basco), who possesses Peter’s old sword. Initially met with skepticism, Peter’s identity is revealed thanks to a brave little boy, Pockets (Isaiah Robinson). Ignited by the resolve of the Lost Boys, they quickly join forces to help Peter rescue his kidnapped children.
Meanwhile, Hook concocts a scheme to win over Jack and Maggie, planting seeds of doubt about their parents’ love. Despite Hook's manipulative tactics, Maggie remains steadfast in her loyalty, imploring Jack to remember their family. However, Jack’s frustrations allow Hook to sway him, as he tunnels out his anger at their father by destroying clocks in Hook’s shop.
As events unfold, a baseball game serves as a distraction; Peter and the Lost Boys sneak in with a plan to recover Hook's hook, believing it would kindle Peter’s ability to fly. Witnessing Hook’s pride in Jack only deepens Peter’s drive, yet leads to another struggle as he recalls his own childhood. In a pivotal moment of self-discovery, Peter remembers his past—how he was whisked away to Neverland by Tinkerbell, escaping an unfathomable fear of growing up, only to find himself longing for the warmth of family once he returned to London after being replaced.
Realizing he needs to find his happy thought to reclaim his ability to fly, Peter masters his flight once more, igniting hope in the Lost Boys and uniting them for a showdown against Hook. In a vicious clash, Hook attempts to weave deeper connections with Jack while Peter grapples with his fatherly duties. With Rufio courageously defending Peter, tragedy looms, and in a haunting moment, Hook kills Rufio, leaving Peter's heart heavy.
As the battle rages on, Peter confronts Hook, wrestling with the decision to avenge Rufio or heed his children’s pleas to spare Hook. In an unexpected twist, Peter stays his hand, allowing Hook a chance at redemption, only for the cunning pirate to meet his end at the jaws of the crocodile he once conquered.
With Hook's downfall, Peter chooses to return home, appointing Thudbutt (Raushan Hammond) as the new leader of the Lost Boys. Finally, as Maggie and Jack embark on their journey back to the nursery, Peter reconnects with his roots at Kensington Gardens, sharing a heartfelt goodbye with Tinkerbell, and ultimately reclaiming his familial bonds by rejecting the call of business in favor of nurturing his family.
