Corporate lawyer Peter Banning is unaware his workaholic lifestyle in San Francisco is straining his relationship with his wife Moira and their children Jack and Maggie. As the family prepare to fly to London to visit Moira’s grandmother Wendy Darling, Peter focuses on completing his work before leaving, inadvertently missing Jack’s baseball game. In London, Peter berates his children while conducting more work, causing Moira to argue with him and throw out his cell phone. That evening, Peter, Moira and Wendy attend a charity dinner in Wendy’s honor, leaving her old friend Tootles and her housekeeper Liza watching over the children. When the group return, they find the house ransacked and the children missing, with a ransom note left behind supposedly written by Captain James Hook. Although Peter involves the authorities in the matter, Wendy stipulates they cannot help, and that the note’s writer is real, claiming Peter is really Peter Pan.
Peter refuses to believe this, but is surprised when drinking in the nursery to encounter Tinker Bell, who uses her pixie dust to bring him to Neverland. Tinker Bell drops Peter within the ranks of Hook’s pirates, whereupon he attempts to rescue his children after seeing Hook displaying them to his crew. Surprised to see Peter, Hook challenges him to fly and rescue his children, but upon seeing he cannot, prepares to execute him. Tinker Bell persuades Hook to let him go instead, promising to bring him back when he has his skills for a climactic battle in three days, vowing that if he wins, Hook will return his children to him. Peter finds himself taken to the Lost Boys, who have been led by Rufio following Pan’s absence. Although they initially scoff at the idea that he is Peter Pan, Tinker Bell helps him prove himself by making him use his imagination to restore some of his abilities, although Rufio remains unimpressed.
Meanwhile, Mr. Smee suggests to Hook to try to turn Peter’s children against him. Although this tactic does not work with Maggie, Jack is swayed due to his father’s mistreatment towards him. Hook then has the pirates play a game of baseball, which Peter spies on while trying to steal his hook. Horrified to see Hook convert Jack to follow him, Peter forces himself to remember who he is, and finds himself brought back to the treehouse by Tinker Bell, where Wendy and her brothers stayed in alongside Pan and the Lost Boys. Once there, Peter begins recalling his lost memories, remembering how he came to Neverland as an infant, thanks to Tinker Bell, and his adventures with the Darling children. He finally recalls that he frequently returned to see Wendy, after the Darlings returned to London, until she had grown old, whereupon he stayed behind after falling in love with her granddaughter Moira.
Recalling the day of Jack’s birth, Peter finds a strong happy thought that restores his power to fly, and bringing him back as Peter Pan. Shocked that he is, Rufio turns over his sword to him, whereupon Pan and the Lost Boys arrive to fight Hook and his pirates as promised. As Peter fights his old nemesis, Jack realizes what Hook has been doing and returns to supporting his father. While Peter focuses on rescuing Maggie, Rufio engages Hook in a sword fight in which Hook stabs him to death. With his dying breath Rufio laments not having a father. Angered, Peter prepares to engage Hook but immediately changes his mind and begins to leave in high spirits when Jack announces he wishes to go home. Hook vows to continue coming after generations of Peter’s children, prompting Peter to reverse course again and engage Hook in a duel, whereupon he defeats him and leaves him to be devoured by the taxidermied crocodile as cheering children happily watch the beast briefly reanimate, ingest Hook and emit a loud belch. While asking Tinker Bell to take his children home, Peter reveals he is too old to stay, and appoints his successor amongst the Lost Boys before returning to London.
Peter awakens in Kensington Gardens with the belief he was dreaming, but is surprised to see Mr. Smee cleaning up bottles nearby. Seeing Tinker Bell waiting nearby, Peter tearfully bids her farewell before returning to Wendy’s house. Reuniting with his family, Peter decides to change his life, and abandons his job in order to devote more time to his family. Realizing he was given something before leaving, Peter hands over to Tootles his lost bag of marbles, whereupon he joyfully shakes it in delight and gets sprinkled in pixie dust. As the family watch him flying out of the house, Peter admits to Wendy that his adventures are not yet over as he hugs his family and they watch Tootles begin his flight to Neverland.