At night in Goofy's house, Max was presenting to his family and Pistol his magic tricks, which were badly presented. He asked his audiences how he fared, but Pistol and Waffles left. His dad was diplomatic, though. Max believed himself to be the greatest magician, but PJ was entirely aware that he wasn't even great to begin with. Max was inspired as a magician, so he will go to the magic shop the next day to buy some magic tricks.
On the next day, Max and PJ went to the magic shop. They met a magician 'The Great Garbonzo' (called Garbonzo from here on). Max asked Garbonzo for a magic trick, so Garbonzo showed him some, but he was terrible at demonstrating his products.
Meanwhile, a magic hat sneaked past everyone and leapt on Garbonzo. At this point he was scared, and declared that he is a terrible magician. That hat came off, and Garbonzo quickly locked it in a chest. Max was amazed with that hat, and wanted to buy it. Of course, Garbonzo refused to sell it, stating that the hat only brings trouble. Instead, he gave Max trick items for free and told him to leave the shop.
At night, Max was performing more magic tricks, this time with the items that he received just now. His new-bought tricks didn't improve his skills, and he ended up hindering Pete. Pete was raged with infuriation that he harshly rebuked Max for cutting his tie and accidentally removing his clothes during Max's failed tricks, and declared that he was worthless and will never in the talent show. Even Goofy had to be frank about his sonÃ¢â'¬â"¢s poor performance.
Max accepted the truth that he wasn't even close to being a magician, and decided to return Garbonzo's trick items back to him. When Max was at the magic shop, the door automatically opened. After returning it, he went out, but the door closed in from of him. Something in the chest just now was talking to him.
From the chest transpired Magician Hat (We'll refer as a 'he' and call 'him' Magician Hat) desperately convinced Max that he is the greatest magician, and settled himself on Max and performed magic to make him believe that. Max finally agreed to take him, but only for the talent show. Even then, Magician Hat had other ideas.
Max was seen on stage performing magic tricks, and won critical praise from the audience. The whole thing was, however, just a dream (Max woke up at 9 in the morning). However, Magician Hat from yesterday was real, and that fact fully convinced Max that he is the greatest magician after all. He ran to PJÃ¢â'¬â"¢s house to show PJ his newfound 'talent'.
In PJ's house, Pete slid towards Max magically. Pete threatened Max to get out of the house immediately, but Max cut Pete's necktie. Everyone was initially worried, but Max seemed to reassemble the tie with magic, much to everyones amazement, even Pete, who initially thought Max was rotten.
PJ reminded Max about the caveats by Garbonzo about the potentially dangerous Magician Hat, but Max denied it, stating that the hat will bring him fame and fortune. Pete offered Max to perform his magic tricks at his business for some profits. It occurred to Goofy and PJ that Max wasn't behaving as himself.
Max was in his room magically choosing his wardrobe. PJ came into Max's room as a friend to talk to Max about Magician Hat, but the hat convinced Max in secret that PJ was disloyal. Max disagreed, but the hat manipulated PJ into proving his point to Max, leading Max to scold PJ for being disloyal. PJ got out of Max's room in repulse when Max cooled down his anger. Nevertheless, the evil Magician Hat was glad to see PJ out of the way, knowing that his potential to bring Max into conscious will be a threat to him.
On the day of the talent show, PJ was outside of the backstage, refusing to help Max, but he intuitively knew something bad will happen. By the time the talent show started, twins Tam and Toby's were first to perform their tap dance, but failed too soon. Meanwhile, Garbonzo came back to his magic shop to find that there was something wrong in the magic shop, where things moved by themselves.
Goofy was hired as Max's assistant. He told Max that he preferred him to have his friend rather than his magic hat. On Max's turn to perform, the evil Magician Hat suggested to Max that he ditch his father, but Max wholly refused, stating his freedom of decisions and tried to remove the hat, but the hat was stuck on his head. Moreover, Max was forced to the stage by the hat. The evil hat even told Max that he only used him as a tool to be alive and powerful. He began casting magic tricks beyond Max's control.
PJ, realizing that Max was in trouble, went to aid him by pulling the hat away, but the evil Magician Hat caused more havoc by turning PJ into a turkey. Pete demanded that PJ be turned back to normal, but he was turned into a baboon. Peg questioned that action, but she was placed in the risk of ferocious tigers. Goofy was even put on a conveyor belt with a spinning blade at the end, threatening his life. (Note: Everyone thinks that Max was performing all magic tricks, but Magician Hat was actually doing it)
Garbonzo showed up and turned PJ back to normal. PJ asked Garbonzo to help Max out of Magician Hat, but Garbonzo told him that only Max could do that, and as long as Max thinks of himself as the world's greatest magician, the hat will stick. Immediately, PJ knew what to do and tell Max to change his affirmation to being the worst magician. Immediately, Magician Hat was in torture, begging Max to believe that he is the greatest magician, but he was locked in the chest again. The show was over with mild reception, and the audiences left. Pete also cancelled Max upcoming performance for his business.
Outside the stage, Max came to his senses that he was a bad magician and a nobody, which Goofy begged to differ (for the latter). He told Max that to him, he is the best son he could have, and to PJ, the best friend. PJ and Max reintegrated their friendship. Together, they walked back home. On the way back, Max suggested ideas for their next year's talent show, all of which PJ had negative impressions of.