Our friends are journey to Mt. Moon where they encounter a flock of Zubats attacking a man. Ash has Pikachu Thundershock the Zubats and the extremely grateful man introduces himself as Seymour the Scientist. He explains that the Pokémon who live in the caves have been confused by lights that someone has strewn all through their homes. This is why the Zubats attacked him and several other Pokémon have become ill.
As they all enter the cave entrance, Seymour continues. He explains that Mt. Moon is rumored to contain the Moon Stone, a large rock that makes a Pokémon power more powerful. Seymour believes that this stone is in reality, a rocket that brought all Pokémon to Earth. It is his hunch that the people who strung the lights up are looking for this rock.
Unsurprisingly to us, Team Rocket shows up. They are indeed searching for the Moon Stone and are irked at the fact that Ash and his friends are there. They quickly challenge him, sending out Koffing and Ekans. Ash retaliates with his Butterfree and Brock sends out a newly acquired Zubat. Zubat confuses Team Rocket's Pokémon with Supersonic, and Ash blows them all away with his Butterfree's Whirlwind. Unfortunately, Meowth manages to escape the gust and runs after a Clefairy holding a piece of the Moon Stone that happened to bounce by. Misty and Seymour give chase and, upon catching up with Meowth, give him a sound beating. When Ash and Brock arrive on the scene, they all follow the Clefairy to another cave and go inside. There they see a huge Moon Stone with many smaller Moon Stones around it. Clefairy places his (or her?) Moon Stone into the only open spot and all the stones start to glow. Suddenly, several other Clefairy appear and they all start jumping around the Moon Stone. After a minute or two of charades, Ash and his friends discover that the Clefairy are praying and the watch in awe.
Unfortunately, Team Rocket shows up again. Our heroes had unknowingly led them right to the Moon Stone. Seymour attacks but is beaten up by Meowth. James's Koffing fills the cavern with smoke and Team Rocket somehow escapes with the huge Moon Stone. Ash, Misty, and Brock use Onix to follow them while Seymour regains his senses. After doing so, he reminds the Clefairy that the Moon Stone is sacred to them and tells them to get it back. They find Team Rocket and the Metronome attack they use triggers a huge explosion, getting rid of Team Rocket, but also breaking the Moon Stone into little pieces. These pieces fall back to the earth, some of which landing on the Clefairy, evolving them into Clefable. They all return to the cave and continue their ceremony.
After Seymour decides to stay at Mt. Moon and study the Clefairy, Ash and his friends continue down the path only to find an etching on a sign pointing the way to Cerulean City. It is from Gary and reads: "Gary was Here! Ash is a Loser!" Ash is enraged, rushing down the trail with his friends rushing to keep up...