On their way to Lilypad Town and Dawn's next Pokémon Contest, Ash and the gang discover a nearby village where a festival is about to occur. Lyra is one of the festival's spokespersons-and a Trainer, to boot. She introduces herself after our heroes find her lost Marill, then she escorts them to the festival. There, they meet a budding young Pokémon Breeder named Khoury, and his father, who runs the festival.
Meanwhile, Team Rocket has showed up and stolen food from the festival! When they see Dawn battle and beat Lyra in a special event where Dawn gets a Pokémon Egg as a prize, they steal it, too! But of course Ash will never let them get away with that! Everyone splits up to go looking for Jessie, James, Meowth, and Dawn's Egg. But they won't be easy to find. An angry Ursaring upsets Team Rocket's getaway plan, and Jessie winds up separated from James and Meowth during the chase.
Under the skillful leadership of Lyra, our heroes discover Team Rocket's whereabouts and retrieve the Egg, later to find out it contains a cute-but rather aggressive-baby Cyndaquil. Dawn couldn't be happier, though! Khoury and Lyra ask Khoury's father if they can go with Ash and company to Lilypad Town...and he says yes! So, for now, our heroes have added two new friends, and a baby Cyndaquil, as well!
As Ash and his friends walk through a village, both Ash and Dawn complain of hunger. As they look for a place to have lunch, Ash spots a Marill stuck between two buildings. Pikachu and Piplup struggle to pull it out, but Marill eventually uses Water Gun to force itself out. Brock checks it as Dawn scans with her Pokédex. A girl runs up and claims the Marill as hers, recalling it to its Poké Ball. She introduces herself as Lyra, and Ash and his friends follow suit. Lyra notices Dawn's Piplup and scans it with her own Pokédex. She reveals that her Pokédex is a brand-new Johto model, the same region she is from, and that the Johto Festival is commencing. She calls Dawn Dane before they set off.
At the center of the village, the festival is in full gear as a phone rings. Lyra pulls out a new type of Pokégear that Ash doesn't recognize and answers it, talking to her friend Khoury. She talks about the festival, how it travels throughout other regions to promote Johto. A recording of Lyra hosting a documentary appears on the screen, the documentary talking about Johto's features, touching on Ecruteak City, its Burned Tower and the Kimono Girls, bringing back Ash's memories (and Brock's of the girls) of his previous travels throughout the Johto region. The presentation continues with Goldenrod City, the Glitter Lighthouse in Olivine City and its Ampharos. It rounds up with Johto's final Gym Leader in Blackthorn City, Dragon-type specialist Clair of Blackthorn Gym. The presentation ends with Lyra hoping that the viewer visits the land of Johto soon. Lyra leads them to a Moomoo Milk stand that her friend Khoury runs. Dawn notices a Totodile behind the counter and scans it. Piplup and Pikachu try to meet, but Totodile doesn't respond to the friend request, about as well as with its Pokémon food that Khoury made. Brock samples it and says that it is too sweet, asking for Chesto Berries. Brock grinds up some Berries into powder with a mortar and pestle, then adds it to the food, which makes it more appealing to Totodile and allows it to chow down. As Brock offers to give him a recipe, Khoury's father offers the group soft serve ice cream made from MooMoo Milk, which they love. Lyra introduces the group to Khoury, a Pokémon Breeder, and his father, the man responsible for running the festival. Ash and Lyra share their experiences throughout Sinnoh and Johto Gyms respectively, Ash with seven Badges and Lyra with two. Dawn mentions that she is a Coordinator, the first one Lyra has met in person, as Khoury's Totodile jumps on his shoulder, hinting that the exhibition of the Johto Pokémon is about to start.
While Team Rocket chows down on food, Lyra starts the exhibition. She discusses the three Johto starter Pokémon on the screen before bringing out her Chikorita. Lyra calls Dawn up to the field to battle Chikorita with Piplup. The crowd applauds as she accepts, stepping up to the platform. Lyra reveals that if Dawn wins, Lyra will give her a prize. Piplup jumps to battle, even though Chikorita has a type advantage. Khoury's father starts the battle as Chikorita hits with Razor Leaf. Piplup rebounds and fires Bubble Beam, but a Light Screen blocks it. Piplup charges with Peck and hits before following up with another Bubble Beam. Another Light Screen blocks it, but it is clearly weaker. Another Peck attack breaks the shield and knocks out Chikorita, giving Dawn the win. Khoury was impressed by the strategy as Lyra recalls Chikorita. Lyra presents Dawn with a wrapped box, her prize. Dawn opens it and finds a Pokémon Egg in an Egg case. As they wonder what is inside the Egg, Team Rocket suddenly appears in their balloon, packed up with food from the festival. Meowth steals Dawn's Egg with a mecha arm. They proceed to escape, but they run into a tree and puncture their balloon, sending them crashing away from the village in the forest. Ash and his friends pursue, and Lyra does too, but she has to convince Khoury to go too.
At the crash site, Jessie eats almost all the food (causing her belly to become swollen, in true anime fashion) as they turn to the Egg. James theorizes that it holds a legendary Pokémon, each one coming up with an idea. A Teddiursa sneaks up and starts eating their food. Jessie scolds it and makes it cry, causing its parent Ursaring to attack them with Hyper Beam. Team Rocket runs away with the Ursaring in hot pursuit.
Ash and his friends find the deserted crash site as Lyra tries to motivate Khoury to be more brave. The guys and the girls split off to search as Ash sends Staraptor to scout. Meanwhile, Team Rocket continues to run. Jessie trips and loses the Egg. James and Meowth go after it while Jessie flees from Ursaring. Meowth and James reclaim it and try to meet up with Jessie. Ash and the guys spot James and follow. As James walks, he notices the Egg flashing, indicating it is close to hatching. Staraptor has also spotted James, and Khoury phones Lyra to coordinate a meet. Using Marill and Totodile's Water Gun attacks, they are able to pursue James. When the guys catch up with James, the girls cut him off. Surrounded, James sends out Carnivine. Khoury proceeds to check Carnivine with his Pokédex at a bad moment. Carnivine fires Bullet Seed to suppress the guys, but Totodile sneaks up and takes the Egg back. Pikachu and Piplup attack with Thunderbolt ad Bubble Beam before a twin Water Gun attack from Marill and Totodile sends James and Meowth off. Dawn reclaims her Egg and notes it is close to hatching.
James and Meowth land and meet up with Jessie (whose stomach has instantly reverted to normal, also in true anime fashion), when they are then surrounded by many Ursaring. Back at the village, Lyra convinces Khoury's father to allow her to go attend the upcoming Lilypad Town Pokémon Contest, while Khoury wants to learn from Brock. He agrees to let Lyra and Khoury go with Ash and his friends for a while. Dawn's Egg fully glows as she brings it out of the case, revealing her new Cyndaquil. Dawn picks up Cyndaquil, as it shows affection by lighting its back fire, torching Dawn's hair. Everyone laughs as they decide to travel together.