The scene opens up in Inspector Gadget's home with Penny and Brain suffering from the ongoing heatwave. When Brain begs for water, Penny goes to the sink to get some for him but nothing comes out. While listening to the radio, they discover that there isn't any water in Metro City due to the drought and everyone must conserve water.
A quick check on the bottle water in the refrigerator makes the situation even more unbearable: the water bottles are gone. Sharing a fan, Penny and Brain discover what happened to the water as Gadget enters the house. The Gadgetvan was dirty and he used the water to wash it.
Gadget decides that one way to beat the heat is to take everyone down to the old swimming hole outside of town. But once they arrive and Gadget takes an unintended mudbath in the dried up swimming hole they decide to head back into town to find some ice cream. This is shown to be futile when the very last bit of ice cream ends up on the ground and melts away.
The situation for Metro City finally gets dire enough for Chief Quimby to arrive. Hiding in a dried up birdbath, he gives Gadget his mission. He must go to the Metro City Reservoir and discover what has happened to all the water. It is figured that MAD is behind it and to proceed with caution. Leaving Penny behind due to the danger, Gadget leaves town and for the surrounding mountains.
Penny directs Brain to follow Gadget and when he leaves a massive water truck arrives. MAD agents exit the truck and begins to sell water by the glass or bottle for very high prices. Figuring out who they are, Penny uses her computer book's built in laser to cut a hole in the truck's tank, which allows the thirsty people to get their water for free. After this, Penny decides to follow her Uncle Gadget up to the reservoir.
Gadget arrives at the main dam of the reservoir with Brain disguised as a ice cream man just behind him. MAD agent Rick Boulder and his two odd little trolls are waiting up on a high ledge for Gadget. With a catapult, Rick and his minions pelt the dam with rocks that make Gadget seek shelter in the empty reservoir. Rick sends his little trolls down to try and get Gadget while he launches one more rock. This ends badly for him when he is also launched with the stone. Destroying Brain's ice cream cart, Rick survives but is knocked unconscious.
Gadget observes how hot and dry the reservoir is but doesn't notice the massive digging machine heading right for him that is being driven by the trolls. Thanks to Brain, Gadget is kept out of the path of the machine and the trolls end up flipping it over. Desperate for answers to the missing water, Gadget decides to proceed upstream.
Penny arrives to the reservoir area and also heads upstream. She soon discovers that the water is being diverted and is being taken underground. But her presence is now known by Dr. Claw who sends the trolls to capture her. Falling into the stream, Penny is sucked away by the vortex of water and into an underground MAD reservoir. The trolls follow but cannot find her.
Back on the surface, Gadget is taking the main road but the Gadgetmobile is overheating. Rick Boulder shows up to offer some "help". Now dressed as a coyote, Brain observes their conversation. The form of Rick Boulder's help is that he wants to dump Gadget down over the cliff. As Gadget falls with his climbing rope still attached to him, Brain sneaks up behind Rick and ties the other end to his ankle. When the rope finally runs out of slack Gadget's weight drags Rick down too. Both are knocked out where there is some water coming out of the mountain. Without a means for climbing down, Brain takes a leap of faith and falls right next to the pair but is rendered unconscious as well.
Dr. Claw sees a chance to eliminate Gadget and diverts water from his secret reservoir to the small waterfall coming from the side of the mountain. The flood of water bursts out of the mountain and washes Gadget, Rick and Brain away. Penny witnesses the reservoir being used and starts working on overriding the system.
Gadget and the others survive the ordeal and with his Gadget-helicoper, gets him and Rick back up to the Gadgetmobile. Putting the water he gathered into the radiator, he is ready to get moving again and offers to drop Rick off someplace. The place he chooses is Balancing Rock that is back toward the Metro City Reservoir.
Penny finally cracks the system and empties Dr. Claw's reservoir. The water finds its way back to the Metro City Reservoir to Claw's growing anger. He orders the trolls to get Penny for what she has done but she again escapes by jumping into the water and follows its flow back to the main reservoir. The trolls, upon Claw's orders, follow her.
Rick at this time is trying to crush Gadget with a giant rock that is balancing on another. Brain, now dressed as a buzzard, keeps preventing this but is soon caught by Rick. Gadget begins a lecture on being nice to the local wildlife to Rick.
All of his plans ruined, Dr. Claw leaves his hideaway with his MAD Jet and blows up the dam holding the water in the Metro City Reservoir as revenge. Penny watches helplessly as thousands of gallons of water begin to rush toward the city.
Gadget however ends up overturning Balancing Rock that begins a landslide that fills up the valley. This stops the flood of water from getting very far. Chief Quimby arrives with the police, arrests all the MAD agents, and praises Gadget while Dr. Claw flies away vowing revenge.