Ash and his friends make their way to Olivine City through a thick forest. They stop as Misty feels spooked as Brock mentions that some scary Pokémon live in the forest. She dreads running into scary Bug-type Pokémon, when a Spinarak drops down in front of her. Ash and Brock decide to press forward, and though she is somewhat hesitant, Misty follows. Meanwhile, Team Rocket have finished their day shift at a gravel pit site. Wobbuffet pops out of his Poké Ball, but Jessie admits that she is too exhausted to do anything. Dreading the night shift, Jessie tosses her pick away, as do the others. They spot a field of corn, giving Jessie an idea.
Ash and his friends decide to set up for the night, having not run into any scary Pokémon. Misty doesn't want to stay in the forest overnight though. The group finds a cabin, and they find it to be uninhabited. They decide to set up inside for the night. As they head inside, a red-eyed creature watches them from the bushes and soon begins to walk around. The sounds lead Misty to wake up and she goes on to disturb Ash’s sleep. Ash suggests that it is Brock muttering in his sleep, but Misty dismisses that suggestion as the rustling sound from outside continues. Brock suddenly wakes up from his nightmare, scaring his friends in the process. The group heads outside, not spotting anything, as a figure enters the cabin undetected. They head inside, back to bed, when Misty notices something in her sleeping bag. She screams and points it out. Ash pulls off the blanket and notices a sleeping Teddiursa. Ash checks it with his Pokédex. As Teddiursa wakes up, Misty is immediately taken by its cuteness and wants to capture it. The Poké Ball frightens Teddiursa, and it rushes to Misty to seek comfort. She decides to hold off and hugs the Little Bear Pokémon. Unbeknownst to the others, Teddiursa grins evilly. The next morning, Misty wakes up and yells at Psyduck, waking the others in the process. They notice Psyduck holding two apple cores, assuming that Psyduck let itself out overnight and ate them, though Psyduck seems upset. Letting it off, she returns Psyduck to its Ball and goes on to hug Teddiursa.
Team Rocket have since set up a corn stand, and business appears to be doing well. Meowth brings in a cart full of fresh corn to keep the operation running. Ash and his friends soon approach after smelling the roasted corn. Teddiursa points out the corn as the group decides to buy five cobs. Seeing Teddiursa's charm, however, convinces Jessie to give it another corn. As they head off, Meowth scolds Jessie for giving it away. They plot to continue selling in order to steal Pikachu and Teddiursa.
Later on, Ash and his friends decide to stop for lunch at a lake. Ash brings out his Pokémon as they proceed to relax. Brock mentions that they only have ham and bread to eat, but that’s enough for the group. As the group makes preparations for lunch, Misty asks Brock to help her carry some fo the collected firewood. He stops cutting the ham to assist, as Teddiursa jumps onto the table and proceeds to eat the ham. Totodile notices and tries to stop Teddiursa, but it smacks Totodile away and eats all of the ham, leaving only the paper wrapping. Hearing the people return, Teddiursa puts the paper in Totodile’s hands and proceeds to cry. Misty shows up and scolds Totodile. Teddiursa snuggles up to Misty as Ash and Brock show up, pointing out the empty wrapper. Totodile tries to point out the real culprit, but Teddiursa’s charm convinces Misty. Ash doesn’t want to believe Totodile did it, despite the apparent evidence. Without the ham, Ash works on the soup as Teddiursa proceeds to steal a batch of bananas. Togepi walks up to Teddiursa as Misty notices the bananas are missing. Teddiursa tries to frame Togepi, but Togepi pushes the bananas into Teddiursa's mouth. Misty initially questions Teddiursa, but she soon walks away, and Teddiursa swallows the entire bunch. Meanwhile, Brock sets a bag of groceries on the table and walks over to Ash, checking on the soup. Teddiursa is quick to grabs the sausages. Chikorita spots the thief and tries to stop it, but Teddiursa pushes Chikorita aside. Ash and his friends return to the table and realize the sausages are missing. They soon notice the chain leading into the bushes. As Teddiursa munches on the sausages, Brock pulls the chain. Knowing the humans are close, Teddiursa wraps the chain around Chikorita and shoves the end into Chikorita's mouth. As the group locate the pair, Teddiursa cries and runs up to Misty, who automatically assumes Teddiursa's innocence. Ash is skeptical but confronts Chikorita nonetheless, with the planted sausages make it impossible to defend her. Chikorita cries and runs away, as Ash and his friends follow, leaving Teddiursa behind. Ash consoles Chikorita, fully convinced that Chikorita wouldn’t steal food. Totodile catches up to them and urges them to go back. At the camp, Bulbasaur and the others watch as Teddiursa rummages through Brock's backpack and takes the loaf of bread, proceeding to eat it. This angers Ash and Brock at how the Pokémon used its charms to manipulate them. Misty doesn’t want to believe it, and its charm almost works on Misty again. Brock and Ash aren't fooled, and Teddiursa proceeds to steal Brock's backpack and runs off. Teddiursa manages to get away with Brock’s backpack and climbs into Team Rocket's cart.
Team Rocket have finished their day's work. As they celebrate, James notices Teddiursa nearby. Teddiursa is quick to befriend the trio, and Meowth translates that Teddiursa wishes to join Jessie's team. The mischievous Pokemon then informs Team Rocket that a forest of apple trees is nearby. As the trio think of their next business venture, they turn around to see Teddiursa taking the final ears of roasted corn for itself. Teddiursa instantly charms Jessie as the angry farmer, who Team Rocket stole their corn from, rushes over to confront them. James and others are forced to flee.
Ash and his friends want to give up the chase, but Brock needs to recover his backpack, which had his guidebook and supplies. Misty notices a Pokémon Center nearby and they proceed to go inside. Nurse Joy confirms the report and mentions that the Teddiursa has been implicated in previous thefts. Learning that she was wrong, Misty apologizes to Totodile and Chikorita. Nurse Joy is deeply concerned about Teddiursa’s mischievous ways and decides that she will join the group to find it.
As Teddiursa munches on the corn near a river, Team Rocket nets it from their balloon. Teddiursa easily slashes through the net so Jessie sends Arbok after it, along with James's Victreebel. Teddiursa easily swats the Poison Sting attack aside and Slashes Arbok, sending it back. Victreebel fires a Razor Leaf attack, but again Teddiursa easily beats Victreebel. Teddiursa fires a Swift attack, popping the Meowth balloon and sending Team Rocket blasting off.
Nurse Joy guides Ash and his friends to Teddiursa's usual spot by the lake, and as predicted Teddiursa is resting there. Teddiursa's charm offensive works on Misty for a split moment, though she soon demands answers. The group watch as Teddiursa scoffs down the leftover bread, and Brock remarks that it isn’t even remorseful. Both Totodile and Chikorita want to fight it, but Ash lets Chikorita go after it. Chikorita proceeds to Tackle it, but Teddiursa dodges and fires Swift, following up with a Slash attack. Chikorita tries a Vine Whip, but Teddiursa uses Double Team to evade followed by a Slash attack. Chikorita then fires a Razor Leaf, landing a hit, following up with a Tackle, sending Teddiursa to the ground. Ash hugs Chikorita as Brock repossesses his backpack. Then, Teddiursa proceeds to glow, evolving into a Ursaring. It gets up and growls, sending the group running. As the sun sets, Ash and his friends talk to Nurse Joy, somewhat relived that Teddiursa evolved, allowing it to be able to find food without having to steal from humans, as well as not being able to charm. Ash and his friends wave goodbye and continue towards Olivine City.
Overnight, Team Rocket huddle by a campfire and are upset at losing their money to the farmer. Ursaring shows up and initially scares them, but it doesn't appear hostile and walks up to them. Jessie is a little taken aback by Ursaring's attempt to act cute, but the team decides to befriend it anyway, and they start dancing together. Ursaring dances with them, although the quick evil stare it gives Team Rocket makes it clear that it hasn't strayed much from its thieving ways.