Arriving in Ecruteak City, Ash immediately makes his way to the Gym to challenge its Leader for his next Johto League Badge. On their way over, they are stopped by Infernando, a fire-breathing salesman, who claims to be 'just the guy they're lookin' for'. The group are quick to brush off Infernando's Itemfinder offer and continue on the trail headed toward the Gym. After receiving instructions from his hungry teammates, James goes on the look for some food. He soon encounters Infernando, and James is instantly sold by the sales pitch and buys himself an Itemfinder. James returns to the park with his new "Treasure Detector", but Jessie and Meowth are immediately annoyed that not only did James not return with food, but he spent all of his money on the worthless device. James tries to prove himself and switches the Itemfinder on. It begin blinking and indicates that something is buried nearby. A few shovel scoops and James spots a glimmering object in the ground, but it turns out to be a bottle cap. Jessie and Meowth are disappointed, but James is thrilled by the rare find.
Arriving at the gates of the supposed "Gym", Misty speculates that the Gym isn't like any others that they have seen before. As they venture through this "Gym" for a few moments, they are forced to flee from a sudden fire inside the building. The group attempts to flee, but the inferno follows them. They try to douse the flames with their Water-type Pokémon, but it proves useless. Ash watches in shock as his Totodile jumps into the flames, and Misty then realizes that it must be an illusion. Ash orders his Noctowl to use Foresight, which reveals the flames to actually be illusions created by a group of Gastly. The Ghost types proceed to attack the group with Night Shade. The Gastly are soon warded off and the trio gives a sigh of relief only to be on edge again by the Gastly coming back, and with several Haunter accompanying them. Ash commands Pikachu to use Thunder Shock on the Ghost Pokémon, but the group find themselves overwhelmed. Soon, a Gengar appears and all the other Ghost-type Pokémon seem to be weary of its presence. Ash is about to command another Thunder Shock, before an unknown voice orders him to stop.
Turning his attention toward where the voice came from, a young blond man is revealed, standing atop of the staircase. At the initial sight of the man, all the Ghost Pokémon instantly hover over before him. He informs Ash and his friends that the Pokémon were not trying to harm them, but merely trying to protect their home after feeling threatened. Ash is quick to demand answers and mystery man is revealed to be Morty, Leader of the Ecruteak City Gym. All Ash, Misty and Brock seem to be surprised at the mention, though Ash quickly regains his bearings and claims to Morty that he wants to compete for the Gym Badge that he holds.
Merely smiling to Ash, Morty explains that he would love to battle Ash in an official Gym battle, but not where they are now. Morty explains that they are actually at the Burned Tower, a place that was once filled with brightness but has since come to be the home of many Ghost types. Ash then spots a wooden carving of an oddly familiar Pokémon, and Morty reveals that it is the Legendary Pokémon Ho-Oh. Ash confesses that he had seen one before, but Morty is highly skeptical. Morty then explains some of Ecruteak City’s history, and adds that the nearby Tin Tower was built after the now named Burned Tower was destroyed in a ferocious blaze three hundred years prior.
Pikachu suddenly notices that Togepi is wandering off further into the Burned Tower, and heading for a hole that only small Pokémon would be able to fit through. Pikachu attempts to stop Togepi, but it too late and the two Pokémon disappear into the small hole. Morty leads the others through the maze-like tower to rescue the pair. He busts open a jarred door, only to realize that the tower's structure is weak and beyond damaged to continue searching safely. He calls upon his Gengar to rally up the other Ghost Pokémon residing in the building and find both Pikachu and Togepi. He reassures Misty and the others that Ghost Pokémon are up to the task. Just as soon as Pikachu catches up with Togepi, it instantly bounds off, heading deeper into the tower.
Just outside, however, Team Rocket is following the beeping of the Itemfinder, but the only thing they have found are bottle caps. James defends the device, but Jessie and Meowth are unimpressed. Jessie then considers selling the caps for money, but James is too attached to his growing collection and holds his loot bag tightly. In the middle of the squabble, Togepi pushes through some rubble and appears near Meowth, instantly catching the attention of the Rocket trio. Pikachu appears soon after, instantly exciting Team Rocket. Just as Pikachu prepares to attack them, Meowth warns him that he risks injuring his friend Togepi. Jessie and the others are thrilled with their two new catches, but a Gastly oversees everything. Gastly then informs Morty of the news. Morty then tells Ash that Pikachu and Togepi have been found, but Ash is more surprised that Morty understood Gastly's speech, and asks him how he did it. Morty simply replies that it's thanks to practice.
Outside the Burned Tower, Team Rocket runs from the scene with Pikachu and Togepi strapped onto James's and Meowth's backs. Gengar emerges from the ground and uses its tongue to trip over the trio, stopping them in their tracks. Jessie is quick to blame Meowth, but Gengar then appears in front of James. Morty and the others soon confront the trio, and Team Rocket promptly recites their motto. Ash demands Pikachu back and proceeds to run at the trio, but Meowth quickly Scratches his face. Jessie and James applaud Meowth's maneuver, and then they start taunting the others. Ash and Misty instantly demand a battle for both Pikachu and Togepi. Jessie says that they'd be happy to before Meowth warns her of the usual consequences. She consults James, and with a consensus reached the three of them start running again with Ash and the others pursuing them.
Chasing after them, Morty calls upon Gengar once more, who then rushes ahead to reach team Rocket. At this, Jessie and James send out Arbok and Weezing to stall the Ghost-type Pokémon from catching up with them. Gengar soon hovers close to the ground and then disappears to ward them off its location, causing both Arbok and Weezing to be confused for a brief moment. It soon appears behind them and rushes in to knock them into the neighboring thicket. Both Arbok and Weezing are momentarily knocked out as a result. Gengar blocks Team Rocket, and the evil trio soon find themselves surrounded by Morty and the others. Morty demands to know the trio's motivations for stealing Pokémon, but is unimpressed by their responses. He orders Gengar use Night Shade, which frees both Togepi and Pikachu. As the two Pokémon are flying through the air after being released, Haunter and Gastly catch them both and carry them to Ash and Misty. After the small reunion, both Jessie and James persist on getting back at the Gengar and brings both Arbok and Weezing into battle. Both Pokémon dive for Gengar, and the Ghost-type merely braces itself for impact before Morty tells it to dodge the attacks. Following orders, Gengar disappears and both Arbok and Weezing crash into the ground. Appearing above the battle scene, Gengar is unharmed and grins at them. Arbok manages to Wrap itself around Gengar momentarily, before it disappears into thin air. Morty, deciding to make the battle quick now, issues the next command: for Gengar to use one of its most powerful attacks, Shadow Ball. At that, however, both Jessie and James stupidly command both Arbok and Weezing to take it head on. Because of this, the Shadow Ball hits the Pokémon directly, and the resulting explosion on the ground sends Team Rocket blasting off.
The group inspects the crater left because of Gengar's Shadow Ball attack, and Ash remarks in awe of Gengar's powerful move. Brock warns Ash that he’ll probably be up against Gengar and its Shadow Ball during his Gym match. Ash then glances over at Gengar as it floats down to the ground. Later, Morty suggests that he and Ash should rest up for the night and battle the next day, and Ash agrees to the idea. Morty and Gengar then reenter the Burned Tower. Ash is quietly confident as he weighs up how powerful Morty and his Ghost types are going to be.