The main film's setting is in the water-themed city of Alto MareJohto. The city is watched over by two Legendary PokémonLatias and Latios. The story behind the two involves an evil Pokémon Trainerusing a Kabutops and an Aerodactyl to terrorize the citizens, until the original Latios came to the city, using his powers to drown the evil Pokémon and turning the streets into canals. However, Latios died and his children were left orphans. His soul is within a special jewel, the Soul Dew.
The Soul Dew is sought by Annie and Oakley, two members of Team Rocket, and acts as a key for activating the Defense Mechanism of Alto Mare (DMA), a special device built in case of disaster. Meanwhile, AshMisty, and Brock are visiting Alto Mare on their travels. Ash and Misty participate in the Tour de Alto Mare, a water chariot race. Misty wins, after Ash takes a wrong turn due to an invisible Latias and Latios. Ross, the former champion of the race, gives the group a tour of the city in his gondola and tells them of the city's guardians. Annie and Oakley follow Latias, disguised as a girl named Bianca. Latias is saved by Ash and his PikachuTeam Rocket are also in the city and decide to follow Annie and Oakley.
The trio later visit Lorenzo, the curator of a local museum, who explains the city's history and also introduces them to the Defense Mechanism of Alto Mare. Ash pursues Bianca, and then Latias in disguise, across the city, eventually discovering a hidden garden where Latias and Latios live. When Latios and Bianca threaten to force Ash out, Lorenzo arrives to clear up all the tension. Latias and Latios play with Ash and Pikachu, and Lorenzo later reveals the Soul Dew to Ash. However, Annie and Oakley's spy robot is watching this, and the duo soon raid the garden, stealing the Soul Dew, capturing Latios, and using both to control the DMA. Latias flees to Ash for help, so they race across the gridlocked city to the museum. Using the DMA, Oakley locks down the city and revives the dead Pokémon to capture Latias. After a long chase through the city, Ash and Latias cause the undead Aerodactyl to crash into a building, and are saved from the Kabutops by their friends' Pokémon. The heroes arrive at the museum to find the DMA going berserk and Latios seriously injured. After freeing Latios, the Soul Dew fades and turns black, causing the DMA to shut down. When Annie tries to get the Soul Dew, it disappears and the city's water becomes a giant tsunami. Latios and Latias use their psychic powers to stop the tsunami, but Latios sacrifices himself in the process. The water returns to the city, washing away Team Rocket in the process. The undead Pokémon return to the museum as Fossils, and Annie and Oakley become trapped inside the DMA.
Latios becomes a new Soul Dew and the new guardian of Alto Mare. Ash, Misty, and Brock start heading off to leave Alto Mare, but Bianca (or Latias disguised as Bianca) stops them before they leave and hands Ash a drawing of him and Pikachu. Saying nothing, she gives Ash a kiss on the cheek before running off, leaving the group wondering who it really was. As the group leave on a boat, they see two Latios and a Latias in the air. Annie and Oakley are sent to jail, where they examine the possessions of Lawrence III from The Power of One.