While travelling in the Gummi Ship, Sora, Donald, and Goofy are caught by a pirate ship belonging to Captain Hook, one of Maleficent's allies. Sora is separated from Donald and Goofy before being confronted by Riku on the deck of the ship. Riku reveals the unconscious Kairi to him, but before Sora can get closer, he is stopped by Captain Hook and his Heartless. Riku reveals that he can control the Heartless, and he demonstrates this power by summoning a dark copy of Sora. Sora tells Riku that the Heartless will consume his heart if he doesn't stop, but Riku doesn't listen. Riku then drops Sora into a prison cell below deck. Meanwhile, Hook complains about Riku bossing him around to his right-hand man, Smee, while fearing that the crocodile who took his hand may have returned.
In the cell, Sora reunites with Donald and Goofy, and also meets Peter Pan, who agrees to help them since Hook has kidnapped his friend Wendy; however, he says he'll only stick around until she is saved. As they travel through the ship, Peter Pan explains that he can fly thanks to pixie dust from his friend Tinker Bell. She sprinkles some on Sora and crew, but they are still unable to fly. Meanwhile, in the cabin, Riku reveals that Wendy was not one of the seven Princesses of Heart like they originally suspected. Riku tells Hook to jettison her, as she is just empty weight, but Hook refuses to do so after all the effort it took to capture her. Hook asks Riku what Maleficent's plan really is, but the boy says he doesn't care, all he wants is to get Kairi's heart back. Hook says that it must have been consumed by the Heartless, so it should be impossible to recover, but he is interrupted by Smee announcing that the prisoners have escaped.
Sora and Peter Pan soon find the cell where Wendy and Kairi are being held, but the girls are soon taken away. They make their way to the cabin where Riku takes Kairi, but not before siccing the shadowy Anti-Sora on them. They defeat the doppelgänger and find Wendy, who Peter Pan takes and leaves. Sora, Donald, and Goofy head out to the deck, but Riku and Kairi are already gone. Hook reveals that Riku left for a world called Hollow Bastion, where Maleficent's headquarters are located. Hook reveals that he has captured Tinker Bell, and he offers to spare Sora's life in exchange for the Keyblade. Sora refuses, and Hook spots the crocodile, so he enters the cabin and leaves Smee to deal with the execution. Sora walks onto the plank, and he remembers what Peter Pan told him: if he just believes, he can fly. Sora jumps off and finds he can fly this time.
Suddenly, Peter Pan returns and saves Tinker Bell. They destroy the Heartless, and Peter Pan pranks Hook by imitating Smee's voice. When the captain comes out, they battle and defeat him, sending him plunging into the ocean. Hook is then chased away by the crocodile. Sora is still astonished that he flew, and he can't wait to tell Kairi. Tinker Bell then tells Peter Pan that something strange happened in London, Wendy's home city, and so they make their way there. They find that the clock tower isn't right, as one of the clock faces doesn't read midnight like the others. After fixing it, the Keyhole appears, and Sora locks it. With that, Sora, Donald, and Goofy say goodbye to Peter Pan and Wendy, but not before Tinker Bell offers to accompany them.
Meanwhile, Riku is reminiscing about when he and Sora first found the secret cave on Destiny Islands. The door seemed blank, but after Sora left, Riku turned back and saw a Keyhole on it. In Hollow Bastion, Maleficent chastises him for coming back without a vessel, as doing so exposes him to the darkness that lurks between worlds. They are interrupted by the roar of the Beast, a castaway from a destroyed world, who Maleficent explains reached Hollow Bastion through sheer force of will. She tells Riku that he will be no match for him, due to the untapped dark powers within him. Maleficent then awakens the power within Riku, further opening his heart to the darkness.
Sora, Donald, and Goofy return to Neverland after the Final Keyhole has been opened. In Captain Hook's ship, they see Tinker Bell, who tries to tell them something, but they can't understand her. They bring Peter Pan, who can understand her, and he tells them that she wants them to go to the clock tower. When they arrive, a fearsome Heartless called the Phantom appears. It casts a curse on the clock tower that will steal one's heart if time runs out. The Phantom is a tricky opponent, but they manage to destroy it, putting an end to its curse...
Tropes:
- Arc Villain: Captain Hook, who has kidnapped Wendy under the suspicion that she’s a Princess of Heart (which turns out to not be the case) and is working with Riku to keep Sora’s party from reaching Kairi.
- Clap Your Hands If You Believe: As in Peter Pan, all it takes to fly in Neverland is faith, trust, and pixie dust.
- Mirror Boss: The Anti-Sora.
- Once More, with Clarity: Riku has the flashback Sora had on Monstro, this time revealing that the door at the Secret Place holds the Keyhole of Destiny Islands.
- Required Party Member: Peter Pan is needed to access the fight against the Phantom. Then again, to do so in the first place requires talking to Tink.
- Superboss: The Phantom.
- Time-Limit Boss: The Phantom's primary gimmick is that it inflicts Doom on the party with Big Ben as the timer: first on Peter Pan, then Donald/Goofy, and finally Sora. It's up to the party to defeat the Phantom before time runs out for Sora... though Sora can cast Stop to temporarily halt the clock.
