While investigating Neverland's strange transformation, Hook and the pirates come across the now-adult Peter Pan. They don't recognize him and he can't remember them anymore. No longer interested in combat, Peter convinces the captain not to fight and is allowed to continue his wanderings. Tinker Bell sees all of this and reveals herself to her friend. Peter now believes Tink is real (he can see her after all) but no longer knows who he is. Meanwhile, the Twins discover that they can fly if they work together and head to Small Monday Island to learn how to save Neverland.
The pirates capture Wendy and the others and learn that the man they found earlier was Peter Pan. Wendy tells the captain that there's no way he can defeat an adult Peter if he couldn't even defeat a boy Peter. But Hook guesses that his enemy has lost his formidable qualities and sets off with Smee to find him. At Small Monday Island, the Twins find out from another fairy that Peter Pan and Neverland are connected: if he doesn't believe in it or remember it, then it can't exist. She also says that only Tinker Bell can restore Peter's memory and save Neverland.
Hook and Smee find Peter as a middle-aged man who can no longer fly and doesn't understand why they're provoking him. During the confrontation, Peter falls off a cliff and instantaneously ages into an old man. Hook doesn't think Peter Pan should die of old age, so he saves him and takes his aged foe back to the Jolly Roger to walk the plank with the Lost Boys. This is very anti-climactic for Hook, who always dreamed of defeating his foe in battle with both at their peaks. The elderly Peter wishes he could remember his identity as he faces death in the Crocodile's jaws. Yet just as he falls overboard, the island and the water disappear and everyone starts floating in a cloudy limbo.
The Twins reach Tink and tell her that she must make Peter want to be himself again. Tinker Bell floats over to Peter and finally jogs his memory by describing their adventures. She tells him that he was never meant to grow up – he is supposed to be the eternal youth. Peter declares that he doesn't want to be old, and a newly revitalized Tink grants this wish by letting a single tear fall on his face. Peter Pan turns back to normal and Neverland is fully restored. Captain Hook is so overjoyed at the return of his worthy adversary that he actually hugs the boy (much to everyone's shock)! The pair then spar like always while Tinker Bell dusts the Darlings and the Lost Boys so they can fly again. The tale ends with Peter flying away, surrounded by his friends, to fight another day.