While the first two movies were based on the novel by Michael Ende, this one is only based "on the characters." It transfers Fantasia into the "real" world. Bastian's dream to get a sibling becomes...

While the first two movies were based on the novel by Michael Ende, this one is only based "on the characters." It transfers Fantasia into the "real" world. Bastian's dream to get a sibling becomes true when his father re-marries, but soon he has trouble with his new step sister Nicole and with a gang of school bullies, the Nasties. Hiding in the school library, Bastian finds his favorite book of THE NEVERENDING STORY when it's later found by Slip, the leader of the Nasties. The Nasties recognizes the power of the book and begins to form Fantasia into his bad intentions. When the chaos becomes worse, the Child-like Empress sends Bastion back to the real world, get the book back from the Nasties, and save Fantasia. Accidentally, some Fantasian characters like Rockbiter Jr., Falkor the Luck Dragon, Barktroll the talking tree-troll, and Engywook and Urgl Gnome, have appeared in the real world in different places. Rockbiter Jr.'s disappearance causes some trouble with Mr. and Mrs. Rockbiter. Meanwhile, Slip and the other Nasties spread anarchy. Finally, Bastian gets help from Nicole, who begins to believe in the power of Fantasia. Together, they're able to solve the situation and become friends as well as sending the Fantasians back to Fantasia and prevent their parents from breaking up.