In a gritty neighborhood of New York City, 10-year-old Danny Madigan finds an escape from his tough life through the action-packed films featuring Jack Slater (played by Arnold Schwarzenegger). Missing his father, Danny often loses himself in Slater's thrilling exploits at Nick's dilapidated movie theater. The theater's owner and projectionist, Nick, surprises Danny with a rare golden ticket once belonging to the legendary Harry Houdini. When Danny watches Jack Slater IV, Nick invites him to stay after the credits to inspect the film print prior to its official release.
As Danny immerses himself in the action, his ticket stub unexpectedly transports him into the film just as a high-octane car chase unfolds. Joined by Slater, Danny narrowly dodges their pursuers and ends up at LAPD headquarters. There, he shares astute observations about the surreal elements surrounding Slater's world, highlighting the abundance of attractive women and the comical detective Whiskers. Danny cautions Slater about the dubious John Practice, humorously recalling, > "he killed Mozart"—a nod to the actor's portrayal in Amadeus. Although Slater initially brushes off Danny’s insights as mere fantasy, Lieutenant Dekker assigns Danny to be Slater’s new partner in investigating a series of crimes linked to the notorious mafia boss, Tony Vivaldi.
As their investigation deepens, Danny's extensive knowledge of Slater's universe leads them to Vivaldi's lavish mansion, where they confront the cold henchman Mr. Benedict. Here, they uncover the tragic circumstances surrounding the death of Slater's second cousin, which they suspect to be caused by Vivaldi's crew. Though they lack tangible evidence, Slater and Danny must flee when Benedict expresses an unusual interest in the ticket stub, realizing its potential to traverse between worlds.
The tension escalates as Slater, his daughter Whitney, and Danny foil an ambush at their residence, but not before Benedict manages to snatch the ticket away and slips into the real world. With this newfound ability, he relentlessly pursues Slater and Danny as they rush to thwart Vivaldi's sinister plan to release a deadly gas during a funeral atop a skyscraper. Complications arise with the sudden betrayal by Practice, who aligns himself with Vivaldi. In an electrifying showdown, Whiskers defeats Practice, enabling Slater and Danny to sabotage Vivaldi’s scheme and avert disaster. Despite Vivaldi's defeat, they are still pursued by Benedict, who must be reclaimed into the realm of fiction.
As the weight of reality bears down, Jack Slater begins to despair, yet he finds comfort in Irene's gentle support. Meanwhile, Benedict plots to penetrate the real world, targeting Schwarzenegger's portrayal of Slater to conjure a line-up of cinematic villains for his ascendancy. This puts Slater at risk during the premiere of Jack Slater IV, where the notorious Jack Ripper emerges. Unfazed, Slater confronts and easily dispatches the Ripper, showcasing his heroism.
Benedict's attempt to eliminate Slater leads to a critical injury, but Danny's timely intervention allows Slater to reclaim his gun and retaliate by shooting out Benedict's explosive glass eye, a fatal blow. With Slater’s life diminishing, Danny grasps that their salvation lies in returning Slater to his film world, where his wounds can merely be labeled as superficial. With a frantic quest to find the remaining section of the ticket stub, Danny ultimately succeeds, facilitating Slater's return to the cinematic realm just as the portal closes behind them. Danny triumphantly reenters reality, leaving Slater to ponder the stark contrasts between their two worlds.
In the wake of these extraordinary events, Slater emerges with a profound respect for the diverse realities that shape their lives. Meanwhile, Danny and Nick form an unexpected friendship, cherishing memories of their adventurous past, while Slater drives into the distance, bidding farewell to the world he has departed.
