Ash Ketchum wakes up late one morning after having broken his alarm clock in his sleep. He eventually makes it to Professor Oak's lab, but he (even though he wants Bulbasaur, Charmander, or Squirtle) is told by Professor Oak that the three starter Pokémon (Bulbasaur, Squirtle, and Charmander) have already been taken by Trainers who were on time. However, Oak reveals that he has one more Pokémon, an Electric-type named Pikachu. Ash has no choice but to take a naughty Pikachu. Despite its volatile and feisty personality, as well as its refusal to get inside a Poké Ball, Ash happily takes Pikachu for his journey.
Outside of Pallet Town, Ash encounters a Pidgey. When Pikachu refuses to fight it, Ash tosses a rock at it, but it hits a Spearow that mistakes Pikachu as the culprit. Soon, more Spearow show up forcing Ash and Pikachu to run. Injured and tired, Ash tells Pikachu to get inside its Ball, but it once again refuses. Instead, Pikachu defends Ash from the Spearow by summoning a large Thunderbolt that scares them away. As the storm ceases, Ho-Oh flies above and drops a feather called a Rainbow Wing. Ash and Pikachu decide to go and find the Legendary Pokémon.
After hearing the Legendary Pokémon Entei is nearby, Ash and several other Trainers rush into the woods to look for it. Ash finds the Entei, but ends up fighting over it with a Trainer named Verity and an aspiring young Pokémon Professor named Sorrel. When Entei escapes, Ash and Verity get into an argument and Sorrel leaves, telling them that they need to find shelter soon. As they look to find shelter, Ash and Verity find a Charmander, which they quickly learn belongs to a ruthless trainer named Cross who left it out in the rain.
Cross refuses to take Charmander back, calling it weak, and Ash and Verity are forced to find it shelter. They come across a cave where Sorrel happens to be and help Charmander back to health. Sorrel reveals that Ho-Oh only gives the Rainbow Wing to the "rainbow hero" who is destined to fight it, as a shadow Pokémon named Marshadow watches. The next morning, Ash convinces Charmander to join them. The group follows the Rainbow Wing, which guides them towards the Raizen Mountain Range, to meet Ho-Oh. Charmander evolves into Charmeleon. Verity sees a Suicune at a nearby lake. Cross returns and challenges Ash's Charmeleon with his Incineroar. Charmeleon is savagely defeated, causing Ash much grief.
Upset over his loss, Ash openly admits that he could have won with Pikachu and later states that he wished he had gotten Bulbasaur or Squirtle. Alone in the woods, Marshadow puts Ash in a sleep-like state as the Rainbow Wing turns dark. Ash has a dream where no Pokémon exist and he attends regular school with Verity and Sorrel. Realizing something is missing, he remembers Pikachu and wakes up to his friends, and the Wing regains its color. They see a Raikou after Ash releases his Butterfree. The group realize they are getting close when the Wing begins to glow in the direction of Mount Tensei.
On the summit, the group makes it to a crystal-like structure called Rainbow Rock, but are interrupted by Cross who wants to fight Ho-Oh himself, having saw Ho-Oh too but didn't receive the Wing. Cross' Incineroar fights Ash's Charmeleon which quickly evolves into Charizard and defeats Incineroar. Cross, refusing to accept his loss, grabs the Wing and places it on the crystal, but due to his evil heart it turns dark, causing Marshadow, an agent of Ho-Oh's, to turn the local Pokémon evil and attack Ash and his friends. The Trainers fight back, but are overwhelmed by the severity of the situation. Ash finally withdraws a severely weakened Pikachu into its Poké Ball as the brainwashed Pokémon attack Ash, and he starts to fade as Marshadow notices the Wing has disintegrated. Pikachu's despair and sorrow was so powerful that its unleashes a massive and devastating Thunderbolt hitting Marshadow and its army, releasing them from Rainbow Wing's corruption. Pikachu continues to cry for its Trainer and best friend.
Ash finds himself in an alternative dimension, but is brought back. Ash takes the newly formed Rainbow Wing and places it on the crystal structure. Ho-Oh arrives, healing everyone and Ash challenges it with Pikachu to battle, but the outcome is never shown. Cross leaves on good terms and eventually Verity and Sorrel leave Ash to achieve their own dreams.
In the end credits, all of Ash's former travelling companions from Kanto to Kalos are shown. Verity is shown returning to her hometown. Sorrel and his Lucario, spot an Articuno which he wanted to study. Cross is seen travelling peacefully with his Pokémon. Ash and Pikachu travel on their own while being tailed by Team Rocket. The film ends as Ho-Oh drops a Rainbow Wing as it flies across the sky.
