Home alone and full of imagination, young Bastian Bux makes a mess in the kitchen while reenacting a heroic role from a German fairy tale. His father, Barney, arrives home from work and is exasperated at the disarray. Later, Bastian tries out for the school swim team, but when the coach asks him to jump from the high dive, the boy claims he has a cramp. That night, when his father asks about the tryouts, Bastian refuses to acknowledge he was too scared to jump. Barney mocks his son’s tattered sweater vest, and Bastian reminds his father that it was a gift from his mother. When Barney leaves for the evening, Bastian goes to his room and gazes tearfully at his mother’s picture. The next day, the boy visits an antique bookshop run by old Mr. Koreander, and he asks for a book to help him overcome his fear of heights. As Koreander searches the shop, Bastian notices an ornately embossed book sitting on the desk, and recognizes the title, The Neverending Story, as one he has already read. The bookseller suggests that books change when read a second time, and Bastian insists on borrowing it. When he returns home, Bastian magically loosens the intertwined snake design from the book’s cover. He tucks the ornament, called “the Auryn,” into his shirt and opens the book. A young girl’s voice beckons him to Fantasia, and moments later, Bastian finds himself on a small boat floating toward Silver City. Meanwhile, the evil sorceress Xayide learns of Bastian’s arrival in Fantasia and consults her advisor, Tri Face, about an invention called the Memory Machine. Tri Face explains that every time Bastian makes a wish using the Auryn, the boy will lose a memory, until he forgets the reason he came to Fantasia. Xayide sends her pet bird, Nimbly, to coerce the boy into using the Auryn. However, Bastian is too intrigued by the people of Fantasia to pay attention to Nimbly. Just then, sharp-clawed giants break through the city’s marble floor. Nimbly urges the boy to wish himself to safety, but Bastian climbs a rope to the rooftop, leaving the merciless giants below. Proud of his newfound strength, the boy leans against a wall, which suddenly opens, and he tumbles into an underground room. There, four unusual creatures open a communication portal to the Ivory Tower, where the Childlike Empress tells Bastian about a strange force that has infected Fantasia with apathy. She asks Bastian to use the Auryn to save both of their worlds. Meanwhile, Barney Bux goes to his son’s room, which is empty except for the open book lying on the bed. He picks it up and notices Mr. Koreander’s name on the inside cover. Back in Fantasia, Bastian pleads with the citizens of Silver City to show courage. A young warrior named Atreyu rides forward on a white horse, and informs Bastian that the sharp-clawed giants come from the sorceress Xayide’s castle. Bastian uses the Auryn to wish for a ferocious green dragon named Smurg to take him to the castle. However, Smurg breathes fire on everything, and flies away. Atreyu gives chase on horseback. Amidst the commotion, Bastian is overjoyed to see his old friend, Falkor. The furry white dragon transports Bastian across Fantasia in pursuit of Smurg. While soaring past Xayide’s castle, they see a laser beam destroy Smurg. Falkor insists he needs to rest, and drops Bastian at the feet of Rock Biter. The gentle giant tells Bastian that the rocks, once so delicious, are no longer nourishing, and Bastian concludes that the unnamed force is responsible. Sometime later, Atreyu meets up with Bastian, Falkor, and Rock Biter. The young warrior lifts two large bags from his horse and informs Bastian that they contain an army of warriors who will help storm the castle. Bastian is skeptical about the size of this “army,” but strategizes with Atreyu as they sit around the campfire. When Falkor asks Bastian if he misses anyone, the boy tells his friends about his dead mother. The dragon urges Bastian to hold on to his memories, even those of make-believe worlds like Fantasia. Later that night, Atreyu and Bastian attempt to sneak into Xayide’s castle, but Xayide learns of the intruders’ presence and sends the sharp-clawed giants to the front gate. Atreyu releases the contents of the two bags, and an “army” of mechanical toys distracts the giants, allowing Bastian to sneak through. Not seeing a way into the castle tower, Bastian uses the Auryn to wish a series of steps on the exterior of the structure. However, each step requires a wish, and Xayide watches in delight as the Memory Machine fills with Bastian’s memories. Once inside the castle, Bastian finds Atreyu in chains. He rescues his friend, and the two boys battle more giants. They observe the hollow remains of a fallen creature, and Bastian names the malevolent force affecting Fantasia, “the Emptiness.” Bastian and Atreyu confront Xayide in her throne room, demanding that she undo her evil spell. Meanwhile, in the real world, Barney Bux becomes concerned about his missing son, and visits Mr. Koreander’s bookshop to ask about The Neverending Story. Koreander suggests he might enjoy the book, but Barney considers it a fantasy. However, the book falls open, and Barney notices Bastian’s name on the page. He returns home and starts reading about his son’s heroic adventures. Back in Fantasia, Xayide agrees to comply with Bastian, and invites him to travel with her to the Ivory Tower, where she promises to undo her spell. During the trip, Atreyu notices they are going in circles, but when he draws Bastian’s attention to that fact, his friend is dismissive. Alone with Xayide, Bastian confesses that he is having a hard time remembering things. The sorceress encourages Bastian to make a wish when memory fails him. Atreyu overhears the conversation and deduces that Bastian’s use of the Auryn is depleting his mind of memories. He realizes he must convince Bastian of Xayide’s deceit. However, Xayide persuades Bastian that Atreyu is jealous of him, and when the two boys meet, they argue and fight. Bastian pushes Atreyu over a cliff, before returning to Xayide’s chariot and discovering that his friend’s warnings were true. Horrified, he tries to find Atreyu, but Falkor has already flown away with the unconscious warrior. Bastian gives chase on Atreyu’s horse, but soon becomes lost and exhausted. As regions of Fantasia collapse in darkness and ruin, Nimbly decides to help the boy. The bird shows Bastian the path to Silver City, where Falkor and Atreyu await. However, by the time he arrives, the city is in ruins. Bastian uses one of two remaining wishes to revive Atreyu. Triumphant, Xayide appears and insists that Bastian use his last wish to return home. Instead, he wishes for Xayide to have a heart. Overcome with emotion, the evil sorceress is destroyed, and the spell cast upon Fantasia breaks. The world returns to its splendor, and the Childlike Empress congratulates Bastian on his newfound courage. Bastian says goodbye to his friends and returns home, where he embraces his father and tells him he loves him.