Fujimoto, once a human turned wizard, lives beneath the waves alongside his daughter, Brunhilde, and her many smaller sisters, charming goldfish-like creatures sporting human faces. During an outing in his unique four-flippered submarine, Brunhilde stealthily departs and floats away on the back of a jellyfish. Unfortunately, after a run-in with a fishing trawler, she finds herself ensnared in a glass jar, which then washes ashore at a quaint fishing village. Here, she's rescued by a kind-hearted five-year-old boy named Sōsuke. In a moment of concern while shattering the glass jar with a rock, Sōsuke accidentally cuts his finger. To his surprise, Brunhilde licks the wound, instantly healing it. He names her Ponyo and pledges to protect her. Meanwhile, a frantic Fujimoto scours the waters for his beloved daughter, whom he fears has been abducted, summoning wave spirits to aid in her recovery, leaving Sōsuke bewildered and heartbroken.
Determined to assert her independence, Ponyo boldly refuses her father's designation and expresses her wish to be known as Ponyo, a human name. By licking Sōsuke’s blood, she inadvertently taps into newfound magical powers, beginning her transformation. However, Fujimoto intervenes, reverting her to her original form and seeking out Ponyo’s mother, Gran Mamare. Undeterred, Ponyo, alongside her sisters, breaks free from her father’s grasp and unwittingly unleashes tremendous magic into the ocean, setting off a catastrophic tsunami. Thrilled Sōsuke rejoices at the sight of Ponyo again, and Lisa, Sōsuke’s mother, allows Ponyo to stay at their home. She then leaves to check on her nursing home residents, assuring Sōsuke of her swift return.
As chaos ensues, Gran Mamare arrives at Fujimoto’s submarine. Meanwhile, Kōichi, Sōsuke’s father, witnesses her journey and recognizes her as the revered Goddess of Mercy. However, the upheaval in nature is evident as the moon seems to falter in its orbit and satellites streak down like meteors. Gran Mamare comforts Fujimoto and presents a test that Sōsuke must pass to allow Ponyo to remain human and restore the natural balance. However, the stakes are high: if Sōsuke fails, Ponyo risks turning into sea foam.
Come the next day, Sōsuke and Ponyo discover that much of their land has been engulfed by the ocean. With Lisa delayed in her return, they embark on an adventure to find her. Utilizing Ponyo’s magic, they enlarge Sōsuke's pop pop boat to navigate through the submerged landscapes, encountering fascinating marine life from the Late Devonian period. Yet, when they reach land, Ponyo, exhausted, dozes off, causing the boat to shrink back to its initial size. Sōsuke manages to drag Ponyo ashore, where they stumble upon Lisa’s abandoned car. Their journey continues, but unexpectedly, Ponyo reverts back to her fish form. On a parallel journey, Lisa and the nursing home residents experience a breath of underwater life thanks to Gran Mamare.
In a tense confrontation, Sōsuke and Ponyo cross paths with Fujimoto, who feverishly warns of the nature’s imbalance and implores Sōsuke to return Ponyo to him. Despite their attempts to escape, they're caught and brought to the secured nursing home where Sōsuke reunites with Lisa. In a private moment, Gran Mamare converses with Lisa before turning to Sōsuke, asking if he can love Ponyo in both her fish and human forms. Sōsuke, unwavering, affirms his unconditional love. Hence, Gran Mamare informs Ponyo that to become human permanently, she must renounce her magical abilities. With a nod of acceptance, Ponyo is encased in a magic bubble entrusted to Sōsuke, who is instructed to kiss it, thereby completing the transformation and restoring the harmony of nature. As lost ships find their way back to port, Fujimoto respects his daughter’s choice, choosing to trust Sōsuke. In a joyous leap, Ponyo springs into the air, sharing a sweet kiss with Sōsuke, marking the completion of her transformation into a human.
