The story begins in the nursery of Darling home, where Mrs. Darling is "sorting through her children’s minds" at bedtime. She is surprised to find that all the children have been thinking of someone named Peter Pan. When Mrs. Darling asks about this mysterious boy, Wendy explains that Peter sometimes visits them when they’re asleep. One night, when she is resting in the nursery, Mrs. Darling wakes up to find that Peter Pan has indeed come to visit. When Peter notices an adult in the room, he jumps out the window, but the children's canine nanny, Nana, traps his shadow inside the room.
A few nights later, when the Darlings are dressing for a party, Mr. Darling quarrels slightly with the children and ties Nana in the yard, to everyone’s dismay. When the Darling parents leave for the party, the children are left unguarded, and Peter and Tinker Bell fly into the nursery. They are looking for Peter’s shadow, which Mrs. Darling had hidden away in a drawer. When Tink gives Peter the shadow, Peter finds that he can’t get it to stay on. His bitter crying wakes Wendy, who quickly sews the shadow on for him. Peter confesses that he has been listening in on the children’s bedtime stories so that he could repeat them to the lost boys. He asks Wendy to come with him to Neverland, where she could go on adventures and be a mother to all the little boys. Wendy hesitates, but finally agrees. Peter teaches all three Darling children how to fly and they set off to Neverland.
After flying for several days and nights, they finally spot the island on the horizon. The island seems dark and dangerous. Pirates who also inhabit the island fire a gun at the group and everyone flies in different directions. Tinker Bell, who is jealous of Peter and Wendy’s new friendship, uses the opportunity to try and get rid of Wendy: she tells the lost boys to shoot Wendy, and Wendy almost dies. But soon everything is well: Peter returns, and Wendy agrees to be the boys’ mother. She cooks and cleans and mends clothes, and she has a wonderful time with it. The boys all love to have regular mealtimes and bedtimes, like regular little boys. Peter takes them on many wonderful adventures.
One night, Wendy is telling the boys their favorite bedtime story: it describes three children who flew away to Neverland, and who returned many years later to find their mother and father waiting for them with open arms. Peter doesn’t like the story: he reluctantly explains that his own mother did not wait for him. Wendy becomes very upset and decides to take John and Michael home immediately. She invites all the boys to come, but Peter coldly declines.
As it happens, the pirates are waiting just above the children’s underground house. When Wendy and the rest come out, they are all captured and taken to the pirate ship. Meanwhile, Peter is lying in bed asleep. Captain Hook, the leader of the pirates, slips down into the lost boys' house and poisons Peter’s medicine. When Peter wakes up, Tinker Bell tries to warn him about the poison, but he doesn’t believe her; at the last moment, she drinks the medicine herself. She grows weaker and weaker, but she is saved by the sound of children clapping all around the world. When she is well again, Peter sets out to save the others.
Hook and his crew have returned to the ship. They are about to make the children walk the plank, when suddenly they hear the ticking of the crocodile – the same crocodile that has been trying to eat Hook. The children see that it is Peter who is ticking, not the crocodile. Peter slips onto the ship, and in the ensuing confusion he and the children kill most of the pirates. When only Hook is left, Peter fences with him and finally throws him to the crocodile waiting in the water.
Soon, the Darling children come home to London. Mr. and Mrs. Darling are overjoyed, and they adopt all the lost boys except Peter, who returns to Neverland. Peter promises to take Wendy back to Neverland every year to do his spring cleaning, but he comes for her only twice.
Wendy and the other boys grow up. The boys get ordinary jobs, and Wendy marries and has a daughter named Jane. One day, Peter returns: he wants to take Wendy to do his spring cleaning, but she is too big to fly, so he takes Jane instead. When Jane grows up, he comes every so often for Jane’s daughter, and so on forever.
