Nemo is a young girl who lives in a lighthouse with her father Peter ever since her mom died. Peter teaches Nemo how to maintain the lighthouse and tells her wild bedtime stories about his adventures with a character named Flip, and one of their adventures involve the searching for a cave of magical wish-granting pearls.
One day, a storm occurs and Peter is lost at sea trying to help a distressed boat. Carla informs Nemo of what happened. With Peter lost at sea, Carla contacts her uncle Philip and persuades him to take Nemo in before she becomes the ward of the state. Philip is shown to lead a monotonous and unfulfilling life. Nemo struggles to adjust to her new life and is an outcast at school as she meets school counselor Ms. Arya and a student named Jamal.
Nemo is awakened one night when her stuffed pig (named Pig) comes to life, finding herself in Slumberland, the world between dreams. She is carried back to the lighthouse by her animated bed, where she meets Flip, a stubborn and unscrupulous outlaw. Nemo recognizes Flip as the character from the stories her father told. He asks Nemo about a magical map, but she is unaware of it. With no use for Nemo, Flip pushes her off a cliff to wake her up. Nemo finds the map in the waking world and manages to take it back to Slumberland, where Flip begrudgingly agrees to take her with him to the pearls so she can wish her father into her dreams.
Flip tells Nemo that he has refused to wake up for so long he no longer remembers who he was when awake. He uses the map as a guide through various dreams to get to the cave. They travel through multiple dreams of different people and are attacked by a cloud of smoke resembling a kraken, a personification of the nightmare of Nemo's father being taken by the same creature. The duo also find themselves being chased down by Agent Green of the Bureau of Subconscious Activities (BoSA), who wants to imprison Flip for never waking up and intruding dreams. They use more dreams to flee Green, but are eventually caught. Green locks Flip up and warns Nemo that she cannot control her dreams before waking her up.
In the waking world, Philip shows Nemo an old cassette tape of him and Peter as children playing together. Nemo realizes that Flip is Philip's dream alter-ego. As Flip has not woken up, Philip remains docile and unadventurous in the waking world. Nemo borrows Philip's lock-picking tools and goes to Slumberland to rescue Flip from the BoSA. The two use more dreams to flee Green, finding their way back to the lighthouse. Nemo tells Flip who he is, and he rebukes this, stating that he will never wake up. Before she can dive into the ocean to find the pearls, Nemo is awakened and torn out of Slumberland by Ms. Arya who reports on Nemo's progress in school to Philip. This leads to an argument between Nemo and Philip.
In Slumberland, Green finds Nemo and commends her on using her wish to save Flip. Green gives Nemo another pearl, which she uses to see her father again. Peter appears and the two spend some quality time together, before he tells Nemo he is proud of her, and that life is waiting for her in the waking world. Nemo says goodbye to her father and wakes up, where Phillip embraces her, now embedded with the personality of Flip.
Nemo begins to improve her life in the waking world, making friends at school and repairing her relationship with her uncle as they make use of one of Peter's boats for sailing.
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