Having problems at home with his wife Diane ,"nutty" inventor Wayne Szalinski has created an electro-magnetic shrink ray. While at work, his neighbor's son, Ron , hits a baseball into Szalinski's attic window and starts the shrink ray, which Wayne thought to be broken. Ron and his older brother Russ and Wayne's children, Amy and Nick , are shrunk by the shrink ray while trying to retrieve the baseball; the baseball's presence in the machine acts as a 'filter' to the machine's energy supply, resulting in it releasing enough energy to shrink the kids without causing them to explode as had happened to Szalinski's test subjects.
As Wayne comes home from a presentation at NASA, he notices his children gone and his "thinking couch" missing. Without an explanation for this occurrence, he begins to get angry at the machine for being joked about during work. He begins to destroy it as his kids, now 1/4 of an inch, try to get his attention, but to no avail. He begins to sweep up the mess and accidentally sweeps his children into the trash. The kids escape the trash and begin to set out for the house. Knowing this will take hours at their size, they begin to climb a flower to see how far the house is. While clinging to the flower, Nick and Russ are attacked by a bee. They cling to the bee for dear life and are separated from Ron and Amy.
Russell Thompson Sr. , Ron and Russ's father, is getting aggravated at his missing sons since he is planning a fishing trip with Russ. Russ, who secretly likes Amy, often feels small compared to his dad's standards since he was kicked off the football team (although it's revealed later on that he actually quit the team). While looking at the attic floor, Wayne finds his "thinking couch" in a miniature form. He soon concludes that he has shrunken the kids. His wife Diane comes home only to make this discovery. She becomes infuriated with Wayne and tries to help search for the kids.
Meanwhile, Wayne accidentally turns on the sprinklers while searching for the kids in the backyard. Giant splashes of water soon surround the kids. Amy begins to drown in the muddy water near the flagstone while Wayne stops the sprinklers. Russ saves her before she dies and gives her CPR. The four children continue their journey. On their way, they find a cream cookie in the yard. They meet an ant who befriends the group, nicknamed "Anty" by Ron. Wayne and Diane decide to tell Russell Sr. and Mae about the shrinking of their children. They are not pleased, but Mae seems to understand more. At the end of the night, the children decide to sleep in a blue Lego piece of Nick's. During the night Amy and Russ admit their feelings for each other and share a kiss, but are interrupted by an attacking scorpion. Anty, trying to rescue them is fatally wounded by the scorpion's stinger, though the kids scare the scorpion off by bombarding it with stones and sharp sticks(Ron is able to put out two of the scorpion's eyes). They comfort Anty who in moments dies from the poison.
In the morning, the group descend into a wormhole while Tommy, Nick's friend, mowes the lawn. Wayne and Diane rush outside to make him stop. He does as the lawn mower is over the hole. It sucks Nick out of hole, but the group hold on to him. They are not killed, but do not get the attention of their parents. Worried and frightened if they'll ever be found, the group hold on to the hairs of the Szalinskis' dog, Quark. While Wayne is eating a bowl of Cheerios, Nick accidentally lands in the bowl. The group try to get Wayne's attention as Nick is about to be eaten. Quark the dog bites Wayne and Wayne freezes with the spoon halfway to his mouth. Looking through a magnifying glass at the spoon, he sees his son. The kids communicate to their parents that the baseball went through the window and started the shrink ray. Armed with this information, Wayne brings the kids up to normal size after using the shrink ray to shrink and regrow Russell Thompson Sr.
A few months later, during Thanksgiving, the two families eat an enlarged turkey together and are happy. Russ Sr. has come to terms with his son quitting football, Wayne and Diane patch up their problems, Nick and Ron finally become friends, and Russ and Amy begin dating. The movie ends with the Szalinski's dog Quark eating a giant milk bone as a Thanksgiving treat. But as the movie begins to black out, it reopens suddenly to Nick, realizing a joke that Russ made earlier about learning CPR in French class. The movie closes with him laughing, getting the joke.