Ash and his friends are walking down the road to Mahogany Town when all of a sudden Pikachu feels sick, followed soon by Togepi. Ash starts to wonder what's going on, but he thinks it's probably just a thing that comes and goes. Soon some Bug Pokémon drop in near Misty, but they appear sick too. A sick looking Rattata and Oddish also appear. They all wonder what's going on. The group reaches the Lake of Rage and try to see if there's anything about the lake that could be causing the sickness. All of a sudden a Red Gyarados appears from the water, startling everyone, first because it's a Gyarados, and second because it's red. Within moments of its appearance, Gyarados fires out a Hydro Pump towards the group, which misses.
Soon an unfriendly-looking group of people come by. Ash notices it's Team Rocket, and the leader simply laughs wondering what a bunch of kids are doing. He sends out a Fearow to take care of them and Ash releases Totodile. Just before Totodile can do anything, he suddenly grows tired but the Fearow remains strong. The Fearow dives in with a Drill Peck but just before the Pokémon can hit, a beam fires towards the Fearow from a newly-arrived Dragonite and its Trainer. Seeing this, Team Rocket decides to flee. The Trainer takes Ash and his friends to another part of the forest around the lake and Ash thanks him. Misty notices that the man is Lance from the Pokémon League. They all wonder what he's doing in a place like this and comment on their progress towards becoming Pokémon Masters. One last thing Ash mentions is to help the Red Gyarados, which immediately Lance says no. He explains that it would be too dangerous for Ash, especially since the Team Rocket members were no ordinary grunts. Ash protests, but Lance still refuses.
Somewhere else along the forest around the lake, Jessie, James, and Meowth stumble along, groaning about their next meal and win. Meowth notices something in the distance that looks like a building. With a building, there's got to be some food around there they can swipe. The building however is a Team Rocket HQ, and inside is the man from before, Professor Sebastian, addressing himself to a superior, another major Team Rocket leader, Tyson, who is assigned to capture the infamous Red Gyarados. Upon further inspection of the security systems, Jessie, James, and Meowth are caught on camera. After walking in a hall, they fall for a trap that seals them in a hallway behind two walls of bars. Then Tyson comes by only to see who exactly they are. Jessie, and James say they're a part of Team Rocket obviously and a grunt walks by and says that they are legitimate Team Rocket members, but have been demoted to rookie rank for making little to none contributions to the organization. Jessie and James negotiate for a while and convince Tyson that they're the important ones.
While Ash and friends walk along the road to Mahogany once more, Brock tries to talk with Ash. However Ash seems like he can't stand there and wait for things to get better. He wants to help the Gyarados, whether or not it is dangerous.
Back at the base, a boat's getting ready for the operation to begin. Just behind one of the docking hangers, Lance hides and waits for a chance. An unsuspecting Rocket grunt walks by and Lance grabs him, takes his uniform and goes onto the boat disguised. Back on the boat, Professor Sebastian explains that Project R is about to begin, but he needs a couple of "expendable" grunts for the first part of the job. Tyson knows the perfect ones. He goes over toward the mess hall where Jessie, James, Meowth, and Wobbuffet are stuffing their faces and he says that they get an "important" assignment: find the red Gyarados. Everyone assembles on deck, Jessie, James, and Meowth are off to find the red Gyarados, but they all start to argue about the whole Gyarados thing. Soon enough, an angry red Gyarados comes towards them and Jessie, James, and Meowth swim off back to the boat, where all of them break surface. As soon as the target is on sight, a Team Rocket member handling a net gun fires it and surrounds the red Gyarados and Jessie, James, and Meowth! Professor Sebastian gives a signal and a power shock is delivered through the netting, shocking both Gyarados and Team Rocket.
The boat starts to go with the catch, but Ash and his friends come just in time. Ash sends out Totodile, and Misty sends out Poliwhirl. They both swim to the net, and Totodile chomps the net and Jessie's hair, while Poliwhirl tries to rip it. Lance notices them, thinking Ash is crazy. Seeing the two Pokémon, Sebastian sends out for another device, which triggers a giant Radar back at Team Rocket Headquarters that sends waves out towards to the area. Soon Totodile and Poliwhirl get tired and let go of the net. Ash realizes it's something at the HQ that's doing this. They start to go over there. Before anything can happen, Tyson catches them and hands them over to the hands of Sebastian. Ash demands to know what's going on and what are they going to do with the red Gyarados. Sebastian explains the whole concept behind Project R, short for Project Revolution. The whole idea was that the Gyarados had a strange property in it that made it red. The aim of Project R is to force Pokémon into evolving or try to achieve the "red" state. Thus, the whole Rocket faction would achieve an army of evolved and above-average Pokémon at their disposal. Later Tyson congratulates Jessie, James, and Meowth for their work, but it seems he has other plans for them.
The Gyarados is later loaded onto a truck which Lance is on, along with Tyson and Sebastian. It drives off, leaving the lake, and Ash, behind.