Katherine Lewis, Kirstie Alley, a dentist who carried on her family’s legacy, is killed when a bike messenger’s path unexpectedly intersects with hers. She wakes in Limbo, a quiet, transitional space that sits between Heaven and Hell, and there she learns she must perform community service as a mythological being before she can ascend to Heaven. To fulfill this calling, she signs a contract to become the Tooth Fairy and begins training under a patient mentor named Raul, Daryl Mitchell.
On her first night on the job, she visits Bobby Jameson, Ross Malinger — a lonely 12-year-old boy — and is accidentally discovered by him. It turns out that children with baby teeth can see her, while those who have lost all their teeth cannot, since the loss of baby teeth marks the loss of the innocence required to perceive magical beings. The following day at school, a bully named Jeff, Jake Richardson, and his gang ambush Bobby, punching him and knocking out another tooth. That night, Katherine returns to Bobby’s side and learns that his mother died of cancer and his father, Thomas Jameson, Dale Midkiff, is constantly at work. Deeply moved by his situation, she decides to help Bobby and his friends with their problems, even though doing so risks exposing herself to living humans and drawing the ire of Limbo’s authorities.
Katherine’s efforts yield an unprecedented spike in popularity, a record-high approval rating as the Tooth Fairy, yet they also draw the attention of Limbo’s higher-ups. Revealing herself to real people is a serious violation, and she is warned to stay within the rules. Undeterred, she asks Raul for help in making herself visible to the parents and the school principal so she can demonstrate to Bobby that she is real and that his memories of her might be genuine. Raul is moved by her willingness to sacrifice Heaven for a child and agrees to assist.
Katherine succeeds in becoming visible to adults by “letting her guard down” and showing Bobby that she genuinely cares, but the act of addressing the parents and principal directly still violates Limbo rules, and she is sent back to Limbo. Rogers, the supervisor of Limbo, Lynn Redgrave, orders her to the Hellavator to descend toward Hell. After saying goodbye to Raul, she begins her descent, but suddenly finds herself alive again on Earth. Raul later explains that she wasn’t dreaming and that she has been granted a second chance at life. She also notices Rogers again, this time as a traffic cop who mouths a warning that she is still being watched.
Back in the real world, Katherine returns to her dental practice with a renewed zest for life. She reconnects with Bobby Jameson, now a patient, and explains what happened to her. As she continues to live fully, she helps Bobby through his day and, when she removes his last baby tooth, Bobby’s memories of the Tooth Fairy fade. Though this saddens Katherine, Bobby’s father recognizes her from the times she became visible. Katherine and Thomas Jameson share a moment that hints at a possible romance, and they agree to attend a baseball game together, suggesting a future where Katherine might become Bobby’s stepmother.
