Tinker Bell and her fellow Fairies introduce the audience to our story (“Fly to Your Heart”). The Darling Children, Wendy, Michael and John, play make-believe in their nursery, imaging themselves in Neverland (“The Elegant Captain Hook”). Mr. Darling comes looking for his cufflinks, but discovers that his adventurous children have drawn a treasure map on the back of his last clean shirt. He scolds Wendy for refusing to grow up and trips over Nana, the dog and nursemaid. Mr. Darling banishes Nana from the nursery, explaining that, sooner or later, all children must grow up. Mrs. Darling puts the children to bed, and Wendy asks her to leave the window open in case Peter Pan returns (“The Second Star to the Right”).
While the Darling children slumber, Peter Pan and Tinker Bell sneak into the nursery in search of Peter’s lost shadow. Wendy wakes up and excitedly tells Peter that she doesn’t want to grow up. He offers to take Wendy and her brothers back to Neverland. Peter teaches Wendy and her brothers to fly, and they set off into the night (“You Can Fly / Fly to Your Heart”).
On a ship docked in Neverland, the Pirates of the island are up to no good (“Yo Ho, A Pirate’s Life for Me”). Captain Hook plots with his first mate, Smee, on how to seek revenge on Peter. They decide to capture Tiger Lily in hopes that they can force her to help. Their plotting is interrupted by the nefarious crocodile who ate Captain Hook’s hand after Peter cut it off (“Never Smile at a Crocodile”). Suddenly, Captain Hook spots Peter Pan in the distance and orders his crew to fire. Peter sends the Darlings with Tinker Bell while he goes on to face Captain Hook himself.
A jealous Tinker Bell flies the Darlings toward the Lost Boys’ hideout (“You Can Fly – Reprise”), then flies ahead to tell the boys that Wendy is a bird that Peter wants them to hunt. Hop hits Wendy with his arrow and she falls to the ground. Peter discovers Tinker Bell’s trick and banishes her for one week. Luckily, Wendy recovers and flies off with Peter to retaliate against Captain Hook. Peter leaves John in charge (“Following the Leader”), but the boys are quickly captured by the Indians and accused of kidnapping Tiger Lily. Chief Tiger Bamboo declares that, if Tiger Lily is not returned, all lost Boys will be burned at the stake.
Wendy and Peter meet the Mermaids, who try to convince Wendy to swim with them (“Sunbeams and Sea”). Peter and Wendy spot Captain Hook and Smee with the captured Tiger Lily and concoct a plan to save the Indian Princess. Peter distracts Hook while Wendy sets Tiger Lily free.
Back at the Indian Camp, the Lost Boys and the Indians celebrate Tiger Lily’s safe return (“What Makes the Brave Man Brave”). Peter takes full credit for Tiger Lily’s rescue, which makes Wendy angry. Meanwhile, Captain Hook stumbles upon the banished Tinker Bell. Using her jealousy to his advantage, Hook convinces her to tell him where Peter and the Lost Boys live.
At the hideout, Wendy tells Peter that he should be less conceited, and the boys beg her to tell a story, calling her “Mother.” Wendy explains that she has only been playing and how wonderful a real mom can be (“Your Mother and Mine”). Her song helps John and Michael to remember their own mom. The Lost Boys suddenly want a mother, too! John declares that they all must return to the nursery at once.
Meanwhile, Captain Hook and his crew have devised a plan to get revenge on Peter Pan. While he is out of the room, the pirates snatch Wendy, Michael, John and the Lost Boys, leaving Peter a beautifully wrapped present. The pirates take their captives to the ship and force them to choose to join the crew or meet their doom (“Walk the Plank”). The boys are certain that Peter will save the day, unaware that Hook has given him a dynamite pie! Realizing what she has done, Tinker Bell calls on her fairy friends for help, and they fly to Peter’s aid. Tinker Bell whisks the pie away right before it explodes. Peter forgives Tinker Bell and they fly off to save Wendy and the boys.
Peter arrives just in time to fight Hook in one last battle. Peter wins and banishes Hook from Neverland. Wendy and the Lost Boys rejoice and, with a little help from Tinker Bell, fly the pirate ship back to the Darlings’ nursery.
Wendy, Michael and John find Mr. Darling waiting for them in the nursery. They tell him of their adventures and, while sceptical at first, he begins to remember his own childhood adventures with a boy who could fly. With the family happily reunited, Peter Pan and Tinker Bell head back to Neverland – second star to the right, and straight on till morning (“You Can Fly / Fly to Your Heart – Part Three”).