At night, a Jigglypuff is strolling casually through a forest. In its wake, a Pidgey and a Caterpie fall from the trees, both of whom are drawn upon by Jigglypuff. It is hit upon the head by a kettle, as it notices a strange blue light trailing across the sky. It heads to the crash site, and the object opens up to reveal several Clefairy. Meanwhile, Ash and his friends enjoy some ice-cream on their break, as a Clefairy eagerly walks up to them. Misty attempts to capture it, leaving Brock and Ash no other alternative but to follow her. As they leave the table, their bags and ice-cream cones are stolen.
Later, Misty remarks that the Clefairy was able to elude her, as Brock returns to the table and notices that their bags are missing. They resolve themselves to go to Officer Jenny and report the theft, but are surprised to find a large crowd of similarly distressed people flocking around the police station. Brock wonders why such unusual items were stolen, to which a scientist named Oswald proclaims the thieves to be aliens. After showing a book of alien spacecraft to Ash and his friends, one of the townspeople explains that he saw one of the machines three nights ago in the forest. This statement is reinforced by Officer Jenny, who reports that the thefts have been going on for approximately three days.
Ash, Misty and Brock follow Oswald, whose use of a tracking device brings them to a giant flying saucer. It lands before them, and two occupants step out. They make off with Pikachu, and reveal themselves to be Team Rocket in disguise. Ash and his friends realize they have been tricked, and he uses his Pidgeotto to cut the cable hoisting the saucer up. Team Rocket recite their motto, as a Clefairy appears before them. Oswald's tracking device goes haywire, fuelling his suspicions that Clefairy is an alien. Whilst Oswald breaks down over his destroyed scanner, Clefairy makes off with Pikachu. Team Rocket attempt to pursue it, but are stopped in their tracks by its Reflect.
Ash and his friends pursue it, only to find themselves facing a dead-end. Jigglypuff uncovers that it went into a manhole, and proceeds to jump in, with Ash and the others following it. As they land deep underground, the group finds themselves faced with the spaceship. Oswald speculates that the Clefairy built the craft, to which Brock realizes that they were the ones who stole the items as parts for the ship. Ash notices one of the Clefairy carrying Pikachu, to which Oswald believes that they will use its electrical capabilities to power their ship. Ash refuses to let this happen, as the timer begins counting down slowly.
Team Rocket are also inside the cavern, and formulate a plan not only to capture Pikachu, but also the entire fleet of Clefairy. In the spaceship, Ash finds Pikachu encased inside a glass chamber, but is guarded by several Clefairy. They refuse to hand Pikachu over, as Jigglypuff intervenes, fighting all of the Clefairy at once. Jigglypuff and Oswald head to the control room, where it once again begins fighting with the Clefairy. The two are evenly matched, but the battle is stopped when Oswald accidentally breaks the joystick at the controls. Jigglypuff snatches the broken "joystick" out of his hand, and begins singing a lullaby.
This causes everyone to fall asleep, and Jigglypuff draws on them in frustration. The spaceship then begins launch procedures, as Pikachu's electricity powers it. Meanwhile, Brock is having a hard time convincing Officer Jenny of the events. The spaceship moves through the vicinity, as several of the stolen items are returned. It takes flight, and Jessie and James attempt to escape from the spaceship just as it begins to detach its compartments. Team Rocket then fall back down to Earth. Pikachu manages to shatter the glass with its electricity, as Ash and his friends discover their bags nearby. They attempt to flee the failing spacecraft, but they are up too high. Ash instead uses his Bulbasaur to wrap its Vine Whip around a nearby skyscraper, pulling them to safety.
The spaceship heads off into the distance, with Oswald and the Clefairy still on board. Ash and Misty both believe that they are going on a grand adventure. However, the spaceship crash lands not too far away, and Oswald frightens off several passersby, as the Clefairy run amok once again. Officer Jenny thanks Ash and his friends for solving the mystery, as they walk off into the distance. Jigglypuff proceeds to follow them as they head to the Pokémon League.
- The English dub title of this episode "Clefairy Tales", is a pun based upon fairy tales.
- When Team Rocket (disguised as aliens) make off with Ash's Pikachu, they repeat the mantra "Nomekop", which happens to be the reverse of Pokémon.
- The "Who's that Pokémon?" in this episode it is Arcanine.
- "We've lost our window of opportunity"
James after being stopped by Clefairy's Reflect.
- "Is this the planet of the Clefairy?"
Oswald after crash landing on Earth, wearing a cardboard box and a frying pan.