In 1977, Pete Healy, a five-year-old boy, is on a road trip with his parents when their car flips off the road following a near-collision with a deer. Pete’s mom and dad are killed, but Pete survives the accident and is chased into the forest by a pack of wolves. He is rescued by a huge dragon with green fur, yellow eyes, and wings. The dragon quickly bonds with Pete and becomes protective of the boy. Pete names the dragon “Elliot” after the character of a lost puppy from his favorite book.
Six years later, Pete, now 11, spots a lumberjack crew chopping down trees near his home. Natalie, the daughter of the ethical site foreman Jack, spots and chases him. When Natalie accidentally falls from a tree, her screams attract her father Jack and his girlfriend, park ranger Grace Meacham. Pete tries to run away, but Gavin, Jack’s pragmatic brother, accidentally knocks him unconscious. After realizing that Pete has vanished, Elliot stumbles around looking for him and ends up knocking over a tree near the lumber camp, leading Gavin to organize a hunting party to find him. Meanwhile, Pete wakes up in a local hospital, which he escapes in an effort to return to the forest. Before the police can catch the boy, Grace finds Pete and asks him to come to her home and promises to take him to the forest the next day.
Gavin and his men locate Pete and Elliot’s treehouse, but when they try to search it, Elliot reveals himself and scares them away. He follows them to town trying to find Pete. After seeing Pete settling in with Grace’s family, he leaves. After Pete gives Grace a drawing of Elliot, she shows her father, Mr. Meacham. He says that he discovered the same dragon as a young man. He advises her to trust Pete, and to find Elliot.
The next day, Pete, Grace, Natalie, and Mr. Meacham travel to the forest to meet Elliot. A group of hunters led by Gavin surprise Elliot and shoot him with tranquilizer darts, then lock him up in Jack’s warehouse. Before the authorities can inspect the dragon, Pete and Natalie free him from his chains and escape on a lumber truck with Mr. Meacham.
Angered, Gavin sets up a roadblock at the bridge to stop them. When Elliot tries to fly, he crashes into the truck, damaging its brakes and it goes through the barricade. Confused and frightened, Elliot perches on top of the bridge and starts breathing fire at the police. The bridge begins to collapse under the intense heat, causing Grace and Jack’s truck to fall through. Gavin tries to save the pair from falling to their deaths. Elliot emerges from the ravine with Grace and Jack riding safely on his back. With a firefighting helicopter approaching, Pete decides to flee with Elliot back to the woods.
Pete pleads with Elliot to let him stay so he can protect him from his attackers, just as Elliot protected him. However, Elliot concludes that as long as they stay close together, Pete will always be in danger. He points out Pete’s book to encourage him to return to stay with Grace and Jack. Pete is reluctant & worried for Elliott’s safety, but ultimately trusts the dragon’s judgment. After a very tearful hug, Elliot returns to the mountains and Pete returns to live with Grace and Jack as his new family.
In the years that follow, Grace and Jack marry and adopt Pete as their son. Not only has Elliot slowly faded from the town’s memory, but Gavin has learned to be more scrupulous and has moved on from the experience. Pete and his family eventually go on vacation, and see that Elliot is finally reunited with his fellow dragons