Dr. Fuji, wanting to find a way to restore life by cloning, leads an expedition to Guyana after finding evidence of a shrine dedicated to Mew, the world's most powerful—but now said to be extinct—Pokémon. Giovanni, the leader of Team Rocket, funds Fuji's research in return for an enhanced, living replica of Mew. Finding a fossil of Mew, Fuji and his team create Mewtwo. A confused Mewtwo asks itself who it is, what it is, and where it came from. Just then, Mewtwo wakes up in a stasis tube in one of Fuji's laboratories, where the scientists study it. Mewtwo breaks out of its test tube; Dr. Fuji tells Mewtwo that it was made by humans and is a clone of, but much more powerful than Mew. Mewtwo is angry that the scientists see it more as an end result to their project and less of a sentient being, so it destroys the lab and kills all of the scientists. Dr. Fuji says to himself that he succeeded in creating the world's most powerful Pokémon before dying at the hands of Mewtwo. Then, Giovanni arrives in his private helicopter and offers to help Mewtwo focus its powers. Mewtwo takes up the offer, and is put in a suit of armor.
Over the next few weeks, Mewtwo does most of Team Rocket's dirty work, capturing wild Pokémon and beating any Trainer that challenges the Viridian Gym, including Gary Oak. When Giovanni tells Mewtwo his own twisted way of controlling Pokémon, Mewtwo angrily blasts away, destroying its armor, and vows from atop the island it was created on to begin its reign on Earth.
Later, as a storm brews, the gang arrive at the Pokémon Center, whose Nurse Joy has been missing for quite a while. Officer Jenny informs the Trainers gathered that the ferry to New Island has been cancelled. Miranda, the pier master tells them that she has lived on the pier all her life and that the current storm is the fiercest she's ever seen. She then tells a story to everyone present about how some people died in a storm many years ago, however legend has it that the tears of a Pokémon restored the people to life.Meanwhile, AshMisty, and Brock are preparing for lunch until a Trainer named Raymond shows up and challenges Ash, who is happy to oblige. With hisBulbasaurSquirtle, and Pikachu, Ash easily beats Raymond. What he doesn't know is that he's being watched, not only by Team Rocket, but by a mysterious third party. JessieJames, and Meowth, who were also watching the battle, don't have any food and watch hungrily as the gang eats Brock's cooking. Suddenly, a Dragonite flies in with a letter for Ash and his friends. It projects a hologram of a mysterious woman who tells the Trainers to head toOld Shore Wharf in order to get to an island fortress called New Island.
Soon, most of the other Pokémon Trainers—ignoring Jenny and Miranda's warnings—take off for New Island. Ash and the gang are eager to follow, but none of their Pokémon are strong enough to handle the giant waves. Team Rocket, under disguise, give Ash and the gang a boat ride. Later, Team Rocket's disguise was uncovered. However, the storm proves too much for them, and as the strong wind and waves hit against the boat, it capsized and everyone was sent into the ocean. The gang saved themselves by using Ash's Squirtle and Misty's Staryuto get all the way to New Island.
As the heroes barely arrive at New Island, the mystery woman from the hologram letter greets them and takes them to the dining room to meet the other Trainers who arrived safely. Brock says that she looked familiar, however, the woman denies it and shows them to the castle.
Meanwhile, as Team Rocket try to get inside the fortress, the Mythical Pokémon Mew senses something troubling and arrives at New Island, and follows closely behind Team Rocket.
As Team Rocket get into the fortress and make their way into a laboratory, they come across a weird-looking machine, a computer, and several Pokémon sleeping in giant pods. Jessie accidentally sits on the computer controls, which play back a recorded message from Dr. Fuji about the fossilized eyelash of Mew that was used to create Mewtwo. Suddenly, the machine takes a piece of hair from Meowth to create a clone of him. Summoned by Mewtwo, the cloned Pokémon awaken and exit to their master.As they arrive in the dining room, Ash and the gang meet three Pokémon Trainers named NeeshaFergus, and Corey. Just then, the mystery woman introduces everybody in the room to her master, who is revealed to be none other than Mewtwo. Fergus insults Mewtwo, who sends him flying. Fergus has his Gyarados attack with Hyper Beam, but Mewtwo easily reflects it. Then, Mewtwo releases the woman from its power, Brock quickly catches her, and it is revealed that the mystery woman is the missing Nurse Joy. Mewtwo tells the Trainers that humans are weak and cruel, and have made all Pokémon their slaves. It also says that Pokémon are no better off, since they choose to associate with humans.
Mewtwo leads Ash and the other Trainers into the stadium part of the fortress and suggests that they should battle Pokémon to see who is the strongest, the clones versus the originals. Ash's Charizard, Corey's Venusaur, and Neesha's Blastoise are no match for Mewtwo's clones. Mewtwo then summons its own specialized Poké Balls, the Clone Balls, and uses them to capture Charizard, Venusaur and Blastoise, claiming them as its prize. Mewtwo then announces that the other Pokémon will be taken to be cloned. The clones will remain safe on the island while Mewtwo's storms destroy the planet. Mewtwo then sends the Balls after the Pokémon.
Pikachu is the only Pokémon still uncaptured, and as a result he's now the only target of the Clone Balls. Ash uses his body to block them, giving Pikachu a chance to run. Pikachu heads towards a nearby suspended staircase and uses ThunderShock to take out a few of the Clone Balls. Ash follows him up the staircase. Pikachu is forced to use his ThunderShock every few seconds, which in combination with constantly being on the run, leaves him exhausted. As a result, Pikachu is forced off the staircase while dodging the Balls, falling a long way. Ash jumps off after Pikachu to protect him, but before he can grab his friend, a Clone Ball finally manages to capture Pikachu. Ash grabs the Ball before he falls into the pool of water at the base of the staircase, and loses his grip on it underwater. Ash follows it, out of the pool, and towards the entrance to the laboratory where Team Rocket is.Immediately, all the Trainers are on the run. Some Pokémon are captured before they realize what's happening, some attempt to outrun the Clone Balls and some attempt to use their attacks to defend themselves. However, it proves to be useless as nearly all the Pokémon end up being captured one by one. Ash deduces that Pokémon inside their Poké Balls should be safe from capture and recalls Bulbasaur and Squirtle. However, it turns out to be no use, as the Clone Balls instead capture the Poké Balls whole with Bulbasaur and Squirtle still inside. Brock suggests carrying the Pokémon away, but while Misty successfully hides Togepi inside her backpackPsyduck and Vulpix aren't so lucky and are also caught.
The same machine that cloned Meowth earlier is now processing all of the Clone Balls, and Ash grabs the one Pikachu is in just as the machine does as well. Fighting against the machine's many arms, Ash eventually manages to get the Clone Ball away, destroying the machine in the process. Pikachu is released from the Clone Ball and shakes himself off. Happily, he reunites with Ash, but the clones are now freed from their stasis tubes, prepared to join Mewtwo. The remaining Clone Balls are released from the machine in an explosion, and all open to free the Pokémon inside, including Squirtle, Bulbasaur, and their Poké Balls.
Mewtwo releases the other humans and is soon joined by its clone army. Ash emerges from the smoke with his and every Trainer's Pokémon and proclaims that they won't let Mewtwo's plan succeed. He tries to punch Mewtwo, but Mewtwo's force field knocks him down. Ash goes in for another punch, but this time Mewtwo sends him flying at a high point of the castle. Ash is saved from the blow by a large, pink bubble. Then Mew comes onto the scene, having created the bubble that protected Ash. The playful Pokémon is soon targeted by a Shadow Ball from its clone, Mewtwo, who says that clones are far more powerful than the originals. Mew communicates with Mewtwo that a Pokémon's real strength comes from the heart, which is translated by Meowth. Disgusted, Mewtwo throws another Shadow Ball at Mew, who dodges it, but the blast hits Ash. With Mewtwo blocking all the Pokémon's special moves, a widespread melee begins between the Pokémon and their clones.

As Team Rocket also look on in horror, Meowth talks with his clone about how, no matter how different people are, they all share a lot in common on this planet.
Ash survives the blast, but is horrified to see all the Pokémon fighting their clones, especially Pikachu getting slapped endlessly by his clone. He eventually falls back down to the stadium floor, prompting Misty, Brock, and Nurse Joy to come to his aid. They see now how horrible this kind of fighting is, and that the originals and clones will never give up, resulting in their deaths. Ash realizes someone has to take a stand and refuse to fight, like Pikachu is.
Just as Mew and Mewtwo are emanating large auras of psychic energy in preparation for their most powerful energy blasts, Ash, angered by the continuous fighting, runs between them, demanding them to stop. The two blasts of energy strike with Ash in the crossfire, and due to the magnitude of concentrated power, Ash is turned to stone.
The stadium becomes silent, save for Pikachu, who runs to Ash's side. After trying to wake him up, Pikachu uses his Thunderbolt in vain, as Ash stays unmoving. Pikachu begins to cry at losing his friend, as do the rest of the Pokémon in the stadium due to Ash's sacrifice. The tears of all the Pokémon come together and magically revive Ash, bringing him back to life just like in the story Miranda told earlier.
After witnessing all of this, Mewtwo states that it does not matter who is more powerful, that the clones and originals both have value, and that the circumstances of one's birth is irrelevant: it is what one does with life that determines one's destiny. Mewtwo also says that it would be best if no one knew about what happened. When Mewtwo flies off, it tells Ash that it will find a place where it and the clones can live in peace. As a result, all of the memories of this event are erased from the Trainers' minds.
Ash, Misty, Brock, and everyone else instantly find themselves back at the Pokémon Center with no memory of their adventure on New Island. Nurse Joy is also back, offering shelter from the storm. Going out to the pier, Ash sees Mew in the clouds as the storm ends and tells Misty and Brock that when his journey began he saw a mysterious Pokémon, and now he believes he just saw another. Misty thinks that Ash was just imagining it, but Brock points out that maybe he wasn't. With that, the three friends prepare to continue their journey.
Meanwhile, Team Rocket, on the now-empty and green New Island and with no clue how they got here, decide to take a vacation as the credits begin to roll.