It's London during WWII and Wendy (voice of KATH SOUCIE) is a married woman who enjoys recounting her tales of Peter Pan, Captain Hook and Never Land to her kids, Jane (voice of HARRIET OWEN) and Danny (voice of ANDREW McDONOUGH), to entertain and distract them as the city is bombed.
Jane, now older and semi-independent, no longer believes any of the stories, as she's more focused on the fact that her father, Edward (voice of ROGER REES), has left for the War and that she and Danny are now to be sent off to the English countryside for their safety. Yet, Wendy realizes that her daughter needs something to believe in, just as much as her younger brother.
That night, Jane hears sounds in her bedroom only to discover that none other than Captain Hook (voice of COREY BURTON), his first mate, Smee (voice of JEFF BENNETT) and their men have flown there in their ship, the Jolly Roger, to kidnap Wendy, but abduct her by mistake.
Flying back to Never Land, Hook hopes to use his hostage to lure Peter Pan (voice of BLAYNE WEAVER) to his doom, but the young and rascally boy hero rescues Jane with the aid of pixie Tinkerbell and a huge octopus that's developed an appetite for Hook.
Peter flies Jane off to meet the rest of the Lost Boys -- Cubby (voice of SPENCER BRESLIN), Nibs (voice of BRADLEY PIERCE), Slightly (voice of QUINN BESWICK), the Twins (voice of AARON SPANN) and Toodles - but she wants nothing to do with them and instead looks for a way back home.
Unfortunately, for her, the only way out is to fly and her disbelief in Tinkerbell's pixie dust doesn't make things easier for her. Nor does it help Tinkerbell who slowly begins to lose her magical powers due to that skepticism. As Hook tries to persuade Jane to help him find the treasure that Peter Pan stole from him in exchange for a ride home, Peter Pan and the Lost Boys try to make Jane fit in so that she will believe and Tinkerbell will recover enough to send the young girl back home.