Based upon Sir James M. Barrie’s 1904 play about the boy who refuses to grow up, the film begins in the London nursery of Wendy, John, and Michael Darling, where three children are visited by Peter Pan. With the help of his tiny friend, the fairy Tinkerbell, Peter takes the three children on a magical flight to Never Land.
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In the nursery of the Darling home, a dog is the nurse, or nanny. Perhaps that is one reason there is so much joy there. Nurse Nana bathes the three children and gives them their suppers and in all ways watches over them. One night, Mrs. Darling, on Nana’s night off, sits with the children as they sleep. Drowsing, she is awakened by a slight draft from the window, and, looking around, she sees a strange boy in the room. She screams, and Nana, who has just returned home, lunges for the intruder, but the boy leaps out the window, leaving only his shadow behind. He had been accompanied also by a ball of light, but it too has escaped. Mrs. Darling rolls up the boy’s shadow and puts it in a drawer, thinking that the boy will come back for it sometime soon and thus may be caught.
When Mr. Darling is told of the incident he considers it a little silly; at present he is more concerned with finding a different nurse for the children. Believing that the dog, Nana, is getting too much authority in the household, Mr. Darling drags her out of the house and locks her up.
Mr. and Mrs. Darling go out the following night, leaving only a maid to look in on the children occasionally. After the lights are out and the children are asleep, the intruder returns. The boy, whose name is Peter Pan, is accompanied by Tinker Bell, a fairy who appears as a ball of light. Peter finds his shadow after searching in all the drawers in the nursery, but in his excitement he shuts Tinker Bell in one of the drawers.
As Peter tries to get his shadow to stick to him again, he makes enough noise to awaken Wendy, the daughter of the household. Peter tells Wendy that he ran away the day he was born because he heard his parents talking about all the things he would do when he was a man; he went to live with the fairies so that he would never have to grow up. Suddenly he remembers Tinker Bell, and he looks for her until he finds her in one of the nursery dressers. Tinker Bell, a ball of light no bigger than a fist, is so small that Wendy can hardly see her. She is not a very polite fairy—she calls Wendy horrible names.
Peter tells Wendy, the only girl of the three Darling children and instantly his favorite, that he and Tinker Bell live in Neverland with the lost boys, boys who had fallen out of their baby carriages and were never found again. He had come to Wendy’s house to listen to her mother tell stories to the others. Peter, begging Wendy and her brothers to go back to Neverland with him, promises to teach them to fly. The idea is too much for the children to resist. After a little practice they all fly out the window, barely escaping their parents and Nana, who has broken her chain to warn Mr. and Mrs. Darling of the danger to the children.
In Neverland, the Indians, with their chief and their princess, help to protect the lost boys against a group of mean pirates led by Captain Hook, who has a hook where one of his hands used to be. It is Hook’s greatest desire to capture Peter Pan, for Peter is the one who tore off Hook’s arm and fed it to a crocodile. The crocodile so liked the taste of the arm that he now follows Hook everywhere, waiting for a chance to eat the rest of him. The crocodile has, unhappily, also swallowed a clock, and its ticking warns Hook whenever the crocodile approaches.
To this strange land Wendy and her brothers fly with Peter Pan. The lost boys, seeing Wendy first in the sky when they arrive, think that she is a giant bird, and one of them shoots her with a bow and arrow. The jealous Tinker Bell had suggested the deed. Peter arrives and, after finding that Wendy is only stunned, banishes Tinker Bell for a week to punish her for provoking the attack. He then tells the others that he has brought Wendy to them. They promptly build her a house and ask her to be their mother. Wendy thinks that taking care of so many children is a great responsibility, but she quickly assumes her duties by telling them stories and putting them to bed.
Jealous, the pirates plan to steal Wendy and make her their mother; they intend to force the other children to walk the plank. Peter overhears them plotting, however, and he saves the children and Wendy. He himself escapes by sailing out to sea in a bird’s nest.
Wendy and her brothers begin to worry about their parents, and they decide that they should return home. The lost boys, delighted at the thought of having a real grown-up mother, eagerly accept Wendy’s invitation to come live with her and her brothers and parents. Peter refuses to go, because he wants always to be a little boy and have fun. He lets the others go, however, and asks Tinker Bell to show them the way.
The pirates have learned of the children’s journey, and as Tinker Bell and the children begin to fly from Neverland, Hook and his men seize them. When Peter finds out that Hook has captured all his friends, he vows to get revenge on the pirate once and for all.
On the pirate ship, the children are being prepared to walk the plank. They are all paraded before Wendy, who is tied to the mast. Unknown to the pirates, however, Peter is also on board, and by using tricks and false voices he leads first one pirate and then another to his death. These strange happenings are too much for Hook. When he knocks the seat out from under Peter and the boy remains in place, calmly sitting on air, the pirate throws himself overboard, into the waiting jaws of the patient crocodile.
Meanwhile, at the Darling home, Mrs. Darling and Nana wait, with little hope, for the children to return. They have left the nursery window open constantly, so that their loved ones might enter easily should they ever come home, but Peter and Tinker Bell fly ahead of the others and close the window so that Wendy and the others will think they are not wanted. Peter, however, does not know how to get out of a room through the door, and thus he is forced to fly out the window again, leaving it open behind him. Wendy and her brothers fly in and slip into their beds, and Mrs. Darling and Nana are overcome with joy when they find the children safe again.
The Darlings adopt the lost boys, who have great fun romping with Mr. Darling. Peter returns and tries to get Wendy to fly away with him, but she refuses to leave her parents again. She does go once each year to clean his house for him, but each time they meet she sees him a little less clearly. Once or twice she tries to get him to see her as something more than a mother, but Peter does not know what she means. Then comes the day when Wendy can no longer fly without a broomstick to help her. Peter, watching her, sadly wishes he could understand all that she says. He picks up his pipes and plays softly, perhaps too softly to awaken humans in a grown-up world.