The movie tells of Pokemon #150, Myuutwo, who is a clone of an even rarer pokemon, Myuu (#151).  Myuutwo, upon finding out that he is merely a clone, goes mad and destroys the lab in which he was born.  Sakaki, the leader of the Rocket-Dan, finds Myuutwo and coerces it to work for him to help him capture even more pokemon.  Myuutwo dismisses this existence as meaningless and therefore destroys the lab.  He declares his counterattack against the humans who gave him an existence he didn't ask for, so he sets off to New Island where it sets up a cloning lab and battle arena. 

Satoshi, along with three other Pokemon Trainers (Sweet, Sorao, and Umio) are summoned to Myuutwo's island to battle pokemon clones that Myuutwo has created.  The battle is meant to determine whether Myuutwo's clones are superior to the originals, and when Satoshi and the other three trainers lose, Myuutwo captures their pokemon as punishment.  Satoshi finds the area where the pokemon are kept and manages to free them, and soon enough Satoshi and the other pokemon confront Myuutwo and his clones.  A battle ensues, and Myuu keeps Myuutwo occupied as the other pokemon battle their clones. 

Satoshi, upset by the struggle, throws himself at Myuutwo in an attempt to stop the fight.  Myuutwo is touched that a human would sacrifice himself for a pokemon's sake and decides that he shouldn't put so much emphasis on the circumstances of one's birth.  The powerful pokemon flies away with the clones to find a new home, his hatred for humans now gone.  Myuutwo returns everyone to the mainland and erases their memories of the events that occurred on New Island.  Satoshi-tachi, remembering nothing about Myuutwo or Myuu, continue their journey to become a Pokemon Master.

Satoshi's pokemon are enjoying themselves at a resort while the trainers rest elsewhere.  The pokemon play while Pikachu looks after Togepi, keeping the baby pokemon from crying and from stepping into danger.  A group of pokemon come to disrupt Satoshi-tachi's pokemon's fun, so Pikachu steps up and tries to settle the situation.  The pokemon soon make up and decide to have a water race, but the outsider pokemon cheat its way to victory. 

Later, Satoshi's Lizardon is sleeping when it's jarred awake by the pokemon's playing.  The giant pokemon ends up with its head stuck in a large pipe, so the other pokemon pull together to free the fire-type.  The pokemon pull and pull, but their strength isn't enough.  Kara-Kara, who had been withdrawing itself from the rest of the group, is finally persuaded to assist the dragon pokemon.  By combining their strength, Lizardon is freed and everyone celebrates.  After cleaning up after themselves, nighttime arrives and Satoshi-tachi's pokemon must leave.  The pokemon wave to their new friends as they rejoin their trainers on the road.

The film debuted in Japan at #4 at the box office.  The American version quickly reached #1 at the box office, making over $50,000,000 in its first five days.  The movie received bad reviews by almost every movie critic, but that didn't stop kids from dragging their confused parents out to see it.  Children skipped school on opening day (which was a Wednesday) to see the movie much like Japanese kids did when the movie first came out in Japan. 

From left:  Japanese VHS, release one; Japanese VHS, release two,
Japanese VHS, mini-movie; American VHS, main feature + mini-movie

Thanks to Pokemonica for the above staff list.