The movie opens with the fairies making final preparations for the Pixie Hollow Games. Rosetta is busy helping to set up flowers for the big night, when she meets a new garden fairy named Chloe, who drops a lump of dirt in front of her, accidentally getting her dirty and, because she's ironically afraid of dirt, causing her to freak out until Silvermist douses her with a water droplet. Chloe announces she has been training for the Pixie Hollow Games and is excited to be competing. Even though the garden fairies have little hope of winning and haven’t ever won, Chloe is confident that she and her partner can turn things around and end the losing streak. When it comes time for the team selection, Chloe has already volunteered and Rosetta is selected to be her partner. She protests, but soon finds out that no one else is willing to compete. So she reluctantly agrees. Vidia remarks "This is going to be good," hoping that Rosetta will humiliate herself.
The Mystery, Inc. gang visit a Halloween carnival on Halloween night; however, when the magician "The Amazing Krudsky" (voiced by Wayne Knight) does not allow Scooby to see his show, he and Shaggy accidentally expose Krudsky as a fraud during one of his acts, resulting in the gang getting kicked out of the carnival. Later, the rebellious Fairy Princess Willow (voiced by Hayden Panettiere) enters Krudsky's tent, where he secretly reveals his wishes to become a real magician. The fairy inadvertently causes Krudsky to notice her on the Goblin Scepter in a spell book, which can be combined with fairy magic to control Halloween. Krudsky then gets an idea to obtain the scepter and rule the world with it. Willow decides to toy with him, but while flying, she accidentally slams her small body against a metal chair knocking her out; Krudsky then crushes her with his flyswatter. When he notices her cry of pain from being crushed, he sees that she is a real fairy, kidnaps her, and absorbs her magical powers, thus becoming a real magician.