Pete (Sean Marshall) has run away from his foster home where he was abused, but he is accompanied by his faithful, animated dragon, Elliot. Pete and Elliot find themselves in Passamaquody, a seaside town. They are taken in by Nora (Helen Reddy) and her father Lampie (Mickey Rooney) who run the town lighthouse. Elliot can make himself invisible when he wants to, so the only person other than Pete who has seen him is Lampie, and no one believes him. However, a traveling medicine peddler, Dr. Terminus (Jim Dale) comes to town and hears about Elliot. Wanting to sell on the magical cures that are supposed to come from dragon, he plots with Pete’s foster family to capture them both. Now Pete and Elliot have to save the day.