Misty has a problem: her Psyduck can't swim. It doesn't even like water! So when Tracey stops by the Cerulean Gym for a visit, the two Trainers give Psyduck some swimming lessons, with absolutely no success. Then Sakura, a familiar face from Ecruteak City, stops by the Gym to challenge her friend Misty and earn the Cascade Badge. That's when Misty gets a big surprise: the Gym ran out of badges, and her sisters forgot to tell her! The Cascade Badges are made by an artisan in Rifure Village, so Misty, Tracey, and Sakura head out to find him. Near the village, they rescue an injured man who turns out to be Kinzo, the very man they need.
Even with an injured ankle, Kinzo is a tough old man. He won't just hand over the badges; he wants everyone to work for them. That means waking up at 4 AM to run laps, split wood, and craft their own badges. If they don't do it right, they'll have to wake up the next morning and do it all over again! It takes two days to get the hang of it, and there's still one more test: a battle with Kinzo's Feraligatr. Misty accepts, but her Psyduck breaks out of its Poké Ball and falls into a pond. When Kinzo sees that, he refuses to give the Cascade Badges to someone whose Water Pokémon can't even swim!
When everyone returns to the cabin, they discover that thieves have stolen all the badges. Our heroes confront the two badge thieves, who refuse to give up. Instead, they send out their Poochyena and Zigzagoon to fight. But when Poochyena bites Psyduck on the head, it triggers Psyduck's real power, and it uses Confusion to stun the thieves. This proves to Kinzo that Misty is worthy of the badges after all, so now it's back to the Gym for Misty's battle with Sakura. Sakura's Espeon not only swims, it knocks Misty's Corsola out with Psybeam. At last, Sakura has earned her own Cascade Badge!
Misty is discovering that many skills are required to be a great Gym Leader, including feeding time, which she has already mastered. As she is feeding Seel, Psyduck falls into the swimming pool again. Just as she rescues him, she hears a familiar voice, and is surprised to see Tracey at the door. Tracey explains that Professor Oak has asked him to go there to see if Misty needed help with any of the Pokémon. Misty tells him that she is having trouble teaching Psyduck to swim.
Tracey starts by getting Psyduck to do circular motions with its arms. Next, he gets Psyduck to get used to the feel of the water. However, the moment its feet touch the water, Psyduck screams and runs off. Once Misty brings Psyduck back, Tracey suggests finding a more fun way to get used to the water. This seems to work as Psyduck is very happy in the water with a life preserver. Next, Tracey puts his face in the water and encourages Psyduck to do the same. Yet as soon as its beak touches the water, Psyduck screams and runs off again.
While this is going on, another familiar face appears outside the Gym. Sakura, the girl Misty befriended in Ecruteak City, and her Espeon are feeling pretty confident for the Gym Battle they are planning to have. But as she enters the Gym, she meets Psyduck coming the other way...
Once she has recovered, Misty apologizes and asks Sakura why she is at the Gym. Sakura explains that she wants a rematch now that she has better battle skills. Misty introduces Tracey, and Sakura comments that she didn't know Misty had a boyfriend. They are both surprised before Misty explains that it is not like that, and that Tracey traveled with Ash and her in the Orange Islands. They then compliment Espeon, and Misty sighs that it is not like Psyduck.
Misty shows them the pool that she has been fixing up, and since she has a free afternoon she says they can do the battle now. Sakura asks if Misty has any Cascade Badges, which surprises Misty, so Tracey tells her that as she is a Gym Leader she may as well make it official. Sakura shows the three that she already has—the Storm Badge, Zephyr Badge, and Hive Badge. Misty goes to find the Badges, but there are none left. She calls Daisy, who informs her that they ran out, which Misty comments is typical. Daisy tells them that they will have to go to Rifure Village to pick up a new batch. Misty feels like Cinderella, but Tracey and Sakura encourage her to go.
After giving the keys to Nurse Joy, who will be looking after the Gym while Misty is away, Misty heads towards Rifure Village. That evening, they find themselves near a mountain. Misty says that the village should be nearby, but Espeon suddenly runs down a side-road. They chase after it, until they find a body on the ground. Asking if he is alright, he explains that he fell from a tree and twisted his ankle. He asks that they take him to his cabin, and explains that he must have slipped while doing his morning tree jumping. Once his ankle is in a plaster, they explain why they are there, and he tells them that he is Kinso the Badge maker.
Misty asks for a new batch of Cascade Badges, but this angers Kinso for some reason. He explains that he won't just give Badges, and that they must work to earn them. Through arduous work one recognizes value, besides badges don't grow on trees! Misty accepts and Sakura and Tracey also join her. Kinso tells them to go to bed as the morning comes very early, 4 AM to be exact.
Once they are out of bed, Kinso tells them all to run round the mountain as healthy circulation helps the fingers to obey the brain. He won't be coming because his ankle is still bad. Next, they have to split some logs. This is used for the fire in the kiln, which is used to heat the metal. Next, they must strike it with hammers while hot and then use a file to make it round. Once it has been welded, it should be the perfect shape. Misty, Tracey and Sakura are proud of how it has turned out, but Kinso is not satisfied. The next day, they must do it all over again!
This time they do better, and are allowed to (lightly) paint the Badge blue. However, they aren't finished yet. While they dry, Kinso sends them on one more lap around the mountain. One coat of polish later, and they are finished. Kinso compliments them, but there is still one more step: If Misty can put up a good fight against his Feraligatr, she can keep the Badges. Misty is perfectly happy to do this and calls Corsola out. Unfortunately, it is Psyduck who comes out. With one look at Feraligatr, Psyduck runs, slips, and falls into a lake. Kinso is shocked that she has a Water-type Pokémon who cannot swim, and refuses to give her the Badges.
They immediately return to teaching Psyduck to swim, but Psyduck just screams and runs off again. Kinso opens the door of his cabin and screams something about a robbery before Psyduck runs right into him. Once he has recovered, Kenso tells them that someone has broken in and stolen all the Badges. Kenso explains that there are hooligans who roam around the countryside stealing Gym Badges so they don't have to work hard to get them. Sometimes, they sell them to make money. Sakura sends out her Beautifly, which Tracey immediately makes a sketch of. She sends Beautifly to search for the thieves. Beautifly soon spots someone, and Kinso tells them that it is where the main road is.
The scene changes to a hand with a number of Cascade Badges in. The two thieves are gloating at how easy their way of obtaining Badges is. Just then, Espeon jumps in front of them and is joined by Misty, Tracey, Sakura and Kenso. The thieves refuse to hand over the Badges, instead sending out a Zigzagoon and Poochyena. Tracey sketches them as well, while Espeon uses a Tackle attack on Poochyena. Zigzagoon uses Headbutt, which misses. Misty orders Psyduck to use Scratch, but it just swipes the air and spins around dizzily. Espeon uses Swift, which Poochyena dodges before using Tackle and Bite on Psyduck. This gives Psyduck a headache, allowing it to use Psychic attacks. Misty orders Disable and Confusion, sending the Pokémon and their Trainers into a tree. The thieves repent their ways and return the Badges before running off.
Back at the cabin, Kinso compliments Psyduck's abilities. He tells Misty that she has passed, and hands over the Badges. Misty is pleased that she can accept challenges at the Gym, and accepts Sakura as the first challenger.
Back at the Gym, it's Espeon against Corsola. Espeon starts off with Tackle, which hits Corsola hard. Corsola attacks back with Spike Cannon, which Espeon dodges by jumping into the water. Misty is amazed at how Espeon can swim, and tells Psyduck that it could really learn something. Espeon jumps out with a Swift attack, hitting Corsola hard. Corsola uses Recover and then hits Espeon with a Tackle. Espeon jumps off the wall, and dodges the Spike Cannon that Corsola is now sending at it. Espeon then uses Tackle, followed by Psybeam, knocking out Corsola. Sakura is the winner.
Misty is amazed at how good Sakura has become, and gladly gives her a Cascade Badge. Tracey is also impressed by how good Misty has improved, and Sakura gives Misty the Badge that she made. Tracey invites Sakura to visit Professor Oak, and so they both head off while Misty waves, feeling ready to take on any challenger.