Bastian Balthazar Bux is a shy and friendless bibliophile 12-year-old, teased by bullies from school. On his way to school, he hides from the bullies in a bookstore, interrupting the grumpy bookseller, Mr. Coreander. Bastian asks about one of the books he sees, but Mr. Coreander advises against it. His curiosity piqued, Bastian seizes the book, leaving a note promising to return it, and hides in the school's attic to read. The book describes the world of Fantasia slowly being devoured by a force called "The Nothing". Fantasia's ruler, the Childlike Empress, has fallen ill, and Atreyu is tasked to discover the cure, believing that once the Empress is well, the Nothing will no longer be a threat. Atreyu is given a medallion named the AURYN that can guide and protect him in the quest. As Atreyu sets out, the Nothing summons Gmork, a wolf-like creature, to kill Atreyu.
Atreyu's quest directs him to the advisor Morla the Ancient One in the Swamps of Sadness. Though the AURYN protects Atreyu, his beloved horse Artax is lost to the swamp, and he continues alone. Later, Atreyu is surprised by the sudden appearance of Morla, a giant turtle. Bastian, reading, is also surprised and lets out a scream, which Atreyu and Morla appear to hear. Morla does not have the answers Atreyu seeks, but directs him to the Southern Oracle, ten thousand miles distant. Atreyu succumbs to exhaustion trying to escape the Swamps but is saved by the luckdragon Falkor (voiced by Alan Oppenheimer). Falkor takes him to the home of two gnomes that live near the entrance to the Southern Oracle. The gnomes explain that Atreyu will face various trials before reaching the Oracle. Atreyu proceeds to enter the Oracle, and is perplexed when one second trial, a mirror that shows the viewer's true self, reveals a boy which Bastian recognizes as himself. Bastian throws the book aside, but after catching his breath, continues to read. Atreyu eventually meets the Southern Oracle who tells him the only way to save the Empress is to find a human child to give her a new name, beyond the boundaries of Fantasia.
Atreyu and Falkor flee before the Nothing consumes the Southern Oracle. In flight, Atreyu is knocked from Falkor's back into the Sea of Possibilities, losing the AURYN in the process. He wakes on the shore of the abandoned ruins, and finds a series of paintings depicting his quest. Gmork reveals himself, having been lying in wait and explains that Fantasia represents humanity's imagination, and that the Nothing represents adult apathy and cynicism against it. Atreyu fends off and kills Gmork as the Nothing begins to consume the ruins. Falkor, who had managed to locate AURYN, rescues Atreyu in time. The two find themselves in a void with only small fragments of Fantasia remaining, and fear they have failed when they spot the Empress's Ivory Tower among the fragment. Inside, Atreyu apologizes for failing the Empress, but she assures him he has succeeded in bringing to her a human child who has been following his quest. As the Nothing begins to consume the Tower, the Empress pleas directly to Bastian to call out her new name. Bastian calls out the name he had selected, and loses consciousness.
When he wakes, he finds himself in blackness with the Empress, with only a grain of sand the last bit of Fantasia remaining. The Empress tells Bastian that he has the power to bring Fantasia back with his imagination using the power of the AURYN. Bastian re-creates Fantasia, and as he flies on Falkor's back, he sees the land and its inhabitants restored, and that Atreyu has been reunited with Artax. When Falkor tells him he can wish for anything, Bastian then brings Falkor back to the real world to chase down the bullies from before. The film ends with the narration that Bastian had many more wishes and adventures, and adds: "but that's another story".
Output: How can Bastian save the empress?