In 1905 Kansas, Oscar Diggs is a magician and con artist in a traveling circus. The circus strongman learns Oscar has flirted with his wife and threatens him. Oscar escapes in a hot air balloon but is sucked into a tornado that takes him to the Land of Oz. There he encounters the naïve witch Theodora, who believes him to be the wizard prophesied to become King of Oz by destroying the Wicked Witch, who killed the previous king. The idea of being a wealthy monarch makes Oscar accept the role. En route to the Emerald City, Theodora falls in love with Oscar though he does not reciprocate her feelings. They encounter the flying monkey, Finley, who pledges a life debt to Oscar when he saves him from a lion. Oscar reveals his deception to Finley and forces him to maintain the idea that he is the wizard.
At the Emerald City Theodora’s older sister Evanora tells Oscar that the Wicked Witch resides in the Dark Forest and can be killed by destroying her wand. On the way to the forest they are joined by China Girl, an orphaned living china doll whose village and family were destroyed by the Wicked Witch. The three reach the forest and discover the “Wicked Witch” is the late king’s daughter Glinda the Good Witch, and Evanora is the true Wicked Witch. Evanora sees this with her crystal ball and tricks Theodora into thinking Oscar is trying to court all three witches at once. She offers Theodora a magic apple “to remove her heartache” but it turns her into a hideous green-skinned witch.
Glinda brings Oscar’s group to her domain to escape Evanora’s army of Winkies and flying baboons. She confides in Oscar that she knows he is not the wizard but still believes he can help stop Evanora. He reluctantly takes charge of an “army” of Quadlings, Tinkers and Munchkins. Theodora enters Glinda’s domain and angrily reveals her new hideous appearance to Oscar before threatening to kill him and his allies with the Emerald City’s well-prepared army. Oscar despairs at his chances of victory, but after telling China Girl about the exploits of his hero Thomas Edison he conceives a plan that relies on trickery.
Glinda and her subjects mount a fake attack on the Emerald City using a pulley-rig army of scarecrow puppets hidden by thick fog. The witches are tricked into sending their flying baboons through a poppy field that puts them to sleep, but Glinda is captured in the process. Meanwhile, Oscar infiltrates the Emerald City with his allies but apparently abandons them in a hot air balloon loaded with gold, which Theodora destroys with a fireball. As the wicked sisters prepare to kill Glinda, Oscar appears, having faked his betrayal and death. Using a hidden smoke machine and image projector, he presents a giant image of his face as his “true” form and a fireworks display to intimidate the Wicked Witches. Evanora fearfully hides in her castle while Theodora flees on her broom, unable to hurt the “invincible” wizard. Oscar offers to Theodora that she would be welcome to return if she overcomes her wickedness, but Theodora refuses and flies away to the West laughing maniacally, leaving Oscar saddened. China Girl frees Glinda from her restraints with her wand, and she engages Evanora in a magical duel in the throne room. Glinda destroys Evanora’s emerald necklace, revealing her to be an old hag, and banishes her from the city. Evanora is carried away by two flying baboons as she vows revenge.
Oscar, now ruler of Oz, uses his projector to sustain the belief that he is a powerful wizard. He presents gifts to his friends: Master Tinker, who helped build his machines, receives Oscar’s jackknife while Knuck, the grumpy Munchkin herald, receives a mask with a smiley face; the long-suffering Finley receives Oscar’s friendship along with his top hat and China Girl accepts her friends as her new family. Finally, Oscar takes Glinda behind the curtains of his projector, thanks her for making him a better person, and they kiss.