In San Antonio, Texas, eleven-year-old David G. “Davey” Osborne plays a board game called “Cloak & Dagger” with his eight-year-old friend, Kim Gardener. The hero of the game is a secret agent named Jack Flack. When they play, Davey is always Jack Flack, and always wins, to Kim’s dismay. The two children frequent a game store run by a man named Morris at the mall. When Morris sends the pair on an errand to retrieve a catalog from the Textronics game company, Davey insists he and Kim pretend to be spies. In the office building that houses Textronics, Davey sees two men, Alvarez and Haverman, with holstered guns. Kim, who is embarrassed by Davey’s shenanigans and refuses to play along, takes the elevator to the game company’s seventh floor offices, while Davey takes the stairs. In the stairwell, Davey imagines a conversation with Jack Flack, who advises him to work alone. Then, Davey witnesses Alvarez and Haverman attack a Textronics engineer. Just before the man is killed, he hands Davey a cartridge for the electronic version of “Cloak & Dagger,” and the boy drops a softball that he imagined to be a hand grenade. Davey flees, but when he returns to the stairwell with a security guard, there is no trace of the engineer’s body. An apparition of Jack Flack appears to Davey and warns him not to tell the guard about the game cartridge. Mr. Rice, the owner of Textronics, claims to have seen no one on the stairs. He later reveals the softball with Davey’s name on it. Later, a police detective takes Davey home and suggests the boy’s father, Hal Osborne, get his son into therapy. Hal explains that Davey recently lost his mother and is going through a tough time. Afterward, Davey is upset when his father does not believe him, and Hal takes away his son’s board games. The telephone rings and a voice asks Davey if he is David G. Osborne. When Davey hands the telephone to his father, the caller hangs up and Hal dismisses it as a wrong number. In the morning, Hal leaves for Kelly Field, where he is a U.S. Air Force Master Sergeant. Davey is fearful and begs his father to stay home. Although Hal must work a double-shift to prepare for an inspection, he promises to accompany Davey to a doctor’s appointment the following day. Alone, Davey contacts Kim through the walkie-talkies they borrowed from Morris, but she claims she is not interested in his latest exploits. Meanwhile, Alvarez and Haverman force their way into Davey’s home and the boy escapes through an upstairs window. At the mall, Davey shows Morris the game cartridge, but at the insistence of his imaginary hero, Jack Flack, does not reveal where he got it. Morris opens the cartridge and discovers an extra microchip. He suggests the game may contain an encrypted code. As Morris plays the game, looking for clues, Davey receives a call from Kim on the walkie-talkie, telling him she is at his home. Suddenly, the caller from the previous night takes over Kim’s walkie-talkie and offers Davey a trade. The caller instructs Davey to go to the Japanese Sunken Gardens, but the apparition Jack Flack lectures the boy to never play by the enemy’s rules. He suggests Davey take a “Cloak & Dagger” cartridge from Morris’s store and substitute it for the encoded tape. At the gardens, Mr. Rice from Textronics awaits as Alvarez and Haverman hold Kim hostage nearby. Kim is released and Davey hands over the game cartridge, but Rice grabs the boy and Davey shoots him with his water-pistol filled with fake blood. As the children escape on a bus, Rice notices a decal for Morris’ store on the back of the cartridge, realizes he has been deceived, and sends Alvarez and Haverman in pursuit. Davey hops off the bus to divert the henchmen and instructs Kim to tell Morris what happened. Meanwhile, Morris reaches the secret level on the video game, revealing classified U.S. government documents for an “invisible bomber” airplane. Rice arrives at the store and shoots the screen. Elsewhere, Davey eludes Alvarez and Haverman, and is befriended by an elderly couple, George and Eunice MacCready. Later, Davey finds Kim at Morris’ store. The bullet hole in the computer screen is the only clue to their friend’s whereabouts. At the Textronics building, Davey continues to be coached by the imaginary Jack Flack. He hides in the trunk of Rice’s Cadillac automobile and discovers Morris’s dead body. Rice, Alvarez, and Haverman drive to the Alamo, where Rice plans to pass the game cartridge to foreign agents. Davey escapes from the trunk, and, once inside the Alamo, encounters George and Eunice. Davey attempts to grab Rice’s camera bag, which contains the encrypted game cartridge, but is apprehended by a security guard. When George helps Rice and the security guard settle the “misunderstanding,” Davey realizes the MacCreadys are foreign agents and now have the game cartridge. Before Eunice renders Davey unconscious using chloroform, she discloses that she and George are taking a midnight flight to Mexico City, Mexico. Davey awakens in the trunk of Rice’s Cadillac. While Rice, Alvarez, and Haverman are momentarily away, the boy telephones Kim from the carphone, warns her about the MacCreadys, and orders her to the airport. When Davey’s captors return, Rice reveals he has planted explosives to blow up Kim’s neighborhood. Davey escapes in Rice’s car, with Rice and Alvarez in pursuit on foot, and Haverman following in the van. Since the boy has never driven before, he crashes at a construction site. When Davey cannot contact Kim on the walkie-talkie, he realizes that Rice has planted explosives in the device. Davey calls his father from a telephone booth, and Hal leaves work to find him. Meanwhile, Haverman crashes the van and dies. As Davey races on foot to the airport, with Rice and Alvarez giving chase, the imaginary Jack Flack convinces the boy to use the “crossfire gambit” from the game. Davey runs between the two men as they fire, and Rice inadvertently kills Alvarez. Davey picks up the dead man’s weapon and faces off with Rice, but refuse to shoot the man. Jack Flack briefly makes himself visible to Rice, who fires his machine gun at the spectre. To protect his mentor, Davey kills Rice, but is angry with Flack for tricking him into doing so. Flack reappears and Davey realizes the agent is bleeding. He tells Davey he is now a hero and must save Kim. Meanwhile, Davey’s father, Hal, learns from Kim’s mother, Marilyn Gardener, that the girl is bound for the airport, and he alerts police Lt. Fleming. Davey convinces a taxicab driver to take him to the airport for free. There, Kim alerts security, who begin an investigation. Davey arrives and claims George and Eunice are his parents, temporarily halting their attempt to board the plane. During the commotion, the children’s parents, Hal and Marilyn, arrive with Lt. Fleming. Davey grabs Kim’s walkie-talkie with the explosives, timed to go off at midnight, but George grabs a guard’s gun, and he and Eunice take the boy hostage on the airplane. Hal boards the plane pretending to be a pilot as Davey attempts to disarm the bomb. The imminent explosion distracts the MacCreadys, and Hal helps Davey escape through the cockpit window. Seconds later, the plane explodes with George and Eunice aboard, but Hal walks away and embraces Davey.