The film begins with Carmen and Juni Cortez (Alexa Vega and Daryl Sabara) being tucked into bed by their mother, Ingrid (Carla Gugino). As Juni treats a wart on his fingers, Carmen eagerly asks for the bedtime tale of The Two Spies Who Fell in Love.
Set in a time of political strife, the story recounts the origins of two spies, destined to eliminate one another, who rather fall madly in love. Defying their respective governments, they choose to marry, drawing the ire of malicious factions intent on their demise. Ultimately, they retire from the life of espionage to start a family. Unbeknownst to the children, Ingrid and her husband Gregorio (Antonio Banderas) are the protagonists of this tale, having lived through such perilous events. Ingrid kisses her children goodnight as they ponder alternatives for the story—Carmen wishing for a new conclusion while Juni whimsically suggests the inclusion of monsters.
Later, Gregorio and Ingrid, now living ordinary lives as OSS (Organization of Super Spies) consultants, discuss the troubling behaviors of Carmen and Juni, who have been keeping secrets from them. Accusations arise from their school principal, pointing to Carmen's truancy and Juni's imaginary friendships. Ingrid feels guilty for not sharing their past, but Gregorio insists it’s for their protection, fearing that risk might taint their children's innocence. Soon, Gregorio is alerted to the mysterious vanishings of OSS agents, including a troubling connection to a children's show character.
While driving his kids to school, Gregorio gently scolds Juni for his obsession with Floop's Fooglies, a show created by the eccentric Fegan Floop ([Alan Cumming]). Strikingly, one character in the show bears a resemblance to a vanished agent, adding to Gregorio's growing unease. Wishing to bolster Juni's confidence, he encourages him to remember that they are Cortezes, but Juni’s innocent curiosity leads him to question, “What’s so special about being a Cortez?”
In the depths of South America, Floop is in dire straits himself; he has been tasked by Lisp ([Robert Patrick]) to create a formidable army, yet his previous candidates have failed to impress. Introducing his latest project—the Spy Kids, robotic children mimicking humans but sadly lacking proper brain functioning—he faces backlash from Lisp regarding deadlines.
Meanwhile, in the Cortez residence, Gregorio prepares for a perilous mission to unveil the mystery behind the missing agents. To his dismay, Ingrid insists on accompanying him, and they appoint Uncle Felix ([Cheech Marin]) to watch over Carmen and Juni. As they embark on their underwater adventure, they are struck by the reality of their dangerous past, now threatening their children.
Back at home, alarms blare as villains invade the castle, leaving Felix to quickly explain the truth to Carmen and Juni about their parents' hidden life as spies. Seizing the moment, Felix leads the children to a special escape vehicle, the Super Guppy. Yet, chaos erupts when Floop’s Thumb-Thumb henchmen attack, forcing the kids to flee unharmed to their parent's safe house.
In Floop's Castle, Gregorio and Ingrid plot their escape, finding themselves cornered by Floop, who reveals his true intentions regarding the Third Brain, a powerful piece of synthetic intelligence. As thrilling escapades ensue, Carmen and Juni, having discovered their parents' secret life, gear up to rescue them while navigating the unveiled dangers of Floop’s schemes.
Carmen and Juni encounter a series of challenges, including battling clones and dodging Floop’s malicious plans. They come across the reclusive Isador "Machete" Cortez ([Danny Trejo]), Gregorio's brother, initially reluctant to assist due to past grievances but ultimately supplying the kids with resources.
After a misadventure that leads them crashing near Floop's domain, they stealthily creep into the castle, relying on the Fooglies for guidance and courage. Through twists and turns, the siblings reunite with their imprisoned parents while facing off against villains, incorporating thrilling changes and unexpected alliances.
As the showdown culminates in a furious battle, family dynamics and forgiveness become paramount themes. The Cortez family, united with newfound allies, confront the robotic army in a fierce culmination of action, leading to the inevitable reckoning of personal histories and original loyalties.
With the threats neutralized and relationships mended, Gregorio's family returns to a quieter life, only to be beckoned for yet another mission by the OSS. As the children resolutely claim they will take assignments together as a family, they embody the spirit of unity and courage that defines the Cortez legacy.
