Fred, Daphne, Velma, Shaggy and Scooby-Doo are attending the grand opening of the Coolsonian Criminology Museum in Coolsville, the evening's premiere exhibition is the costumes of the many monsters that Mystery Inc. has faced and unmasked over the years. While attending the party, Velma develops a crush on the museum's curator Patrick Wisely, while news reporter Heather Jasper-Howe seems to berate Fred and Daphne's relationship, eve though both of them state that they are just friends. However, the night turns into a crime scene, when the mysterious villain called The Evil Masked Figure attacks the museum with the Pterodactyl Ghost costume that has mysteriously come to life. Scooby and the others try to stop them, but they eventually escape, taking the Black Knight Ghost and the 10,000 Volt Ghost costumes with them.
The press start a smear campaign against the gang led by Heather. Shaggy and Scooby take responsibility for the troubles at the museum and decide to make themselves better detectives. Analysing the evidence collected in the museum, the gang figures out that The Evil Masked Figure is one of their old foes wanting revenge. After ruling out the original Pterodactyl Ghost's portrayer, Jonathan Jacobo, after his apparent death, when he tried to escape fro prison, ending up in the bottom of the sea, the gang selects "Old Man" Jeremiah Wickles as the culprit, Wickles being the original portrayer of The Black Knight Ghost in their first case. The Gang tries to prove Wickles is behind all this, because one of the costumes stolen, was the Black Knight Ghost. They visit Wickles' manor where they find strange green footprints that lead to the library where they find a book that is basically an instruction manual on how to create monsters. Meanwhile, Shaggy and Scooby find a note that has "Faux Ghost-Tonight" written in it. Afterward, they are attacked by the reanimated Black Knight who is fought off by Daphne and Fred, until Velma uses the book to find the knight's weak point, kicking him in the crotch. They eventually escape, but know very well that that was just the begginig and that they would see the Black Knight Ghost again.
At night, Shaggy and Scooby sneak off to the Faux Ghost that turns out to be a nightclub where they encounter many of their old adversaries such as C.L. Mangus, who was the original Ghost of Red Beard, Aggie Wilkins, who was The Ozark Witch and Timmy Belafonte, who was the original Cotton Candy Glob. While in disguise, they managed to speak to Jeremiah Wickles. Barely managing to get out after their cover is blown, the duo follow Wickles to Coolsville's old mining factory. Meanwhile, Fred, Velma and Daphne discover the key ingredient to making the monsters is a substance called Randamonium, and along with Patrick, they go to the museum where they discover all of the other costumes have been stolen. Following the same lead as Shaggy and Scooby, the three of them also go to the mining factory where Wickles is proven innocent when he is revealed to be planning to turn the factory into a summer camp. After fiding themselves facing the newly ressurected Skelethon Men, Shaggy and Scooby find a laboratory where they mess around with some chemicals, transforming into various forms until they blow up a wall, attracting the attention of the others. Reunited, the gang investigate a hidden room where a massive monster-making machine is located. Shaggy and Scooby accidentaly turn it on, bringing the Zombie, Miner '49er, Captain Cutler, and The Tar Monster to life. When they try to flee, a pair of supercharged wires connected to what seems to be some kind of small powerplant block their way into the elevator. This turns out to be the 10,000 Volt Ghost, who tries to fry them into oblivion.
Using all their skills, the gang manages to escape form the clutches of the 10,000 Volt Ghost, with the machine's control panel and are forced to flee the city when the monsters attack it, in the process of which, The Evil Masked Figure appears on what seems to be the Ghost Red Beard's ship on a very crowded street, telling everyone there to turn in Mystery Inc. The Tar Monster then appears and basically explodes, sending massive amounts of tar across the entire street, and capturing the people there. In the swamplands, the gang finds their old clubhouse where they discover that they can reverse the machine's effects by altering the control panel's system. The gang returns to the mining town after escaping Captain Cutler, the Pterodactyl Ghost and the Zombie driving an oil tanker. Fred and Daphne split off from the group to fight the Black Knight Ghost and the electrical 10,000 Volt Ghost. They defeat the two ghosts by channeling the 10,000 Volt Ghost through a pair of jumper cables into the Black Knight Ghost who acts as a conductor, causing the two to explode.
Velma finds a shrine to Jacobo, including a picture of him taken in front of the Coolsonian, a year before this one opened. She tries to find the others, and almost falls, being saved from death by Patrick, who she suspects to be the one behind all the mystery. To her surprise, he is carried off by the Pterodactyl Ghost. Shaggy and Scooby get a boost of confidence from Velma and defeat their first monster, The Cotton Candy Glob by eating him. The gang reunite in the Monster Hive but all except for Scooby are captured by The Tar Monster. Scooby uses a fire extinguisher to freeze him and then makes it past the other monsters to the machine where he places the control panel and destroys the monsters. The Evil Masked Figure makes a run for it but falls upon a collapsing walkway. He is unmasked to the press and public to be revealed as Heather Jasper-Howe, and then unmasked again as Dr. Jonathan Jacobo. Velma and Fred then explain that Jacobo survived his escape from prison, and it was in prison with Wickles whom he tried to frame, and used the Howe persona to turn the press against the gang, so he could get his revenge on them. Howe's cameraman Ned is also arrested for his part in the act by posing as The Evil Masked Figure when Jacobo was posing as Heather. The film ends with the cast dancing in the Faux Ghost to Ruben Studdard, who is singing.