In the year 740 AD, one of Merlin's apprentices, Maxim Horvath, turns against him, joining forces with the evil sorceress, Morgana le Fay. His other two apprentices, Balthazar Blake and Veronica, come to the rescue, but are too late to save Merlin from being mortally wounded by Morgana.
Balthazar battles Horvath, and is about to be killed by Morgana. However, Veronica uses a spell to absorb Morgana into her. Morgana tries to kill Veronica from the inside, and to save Veronica, Balthazar imprisons Morgana and Veronica in the Grimhold, a prison similar to a nesting doll. Before dying, Merlin gives his remaining apprentice a dragon ring that will eventually choose the Prime Merlinian, who will become Merlin's successor and obtain his powers. Throughout history, Balthazar imprisons evil sorcerers who try to release Morgana, including Horvath, into the Grimhold while he searches for the one that will defeat Morgana.
In 2000 in modern-day Manhattan, 10-year-old Dave Stutler goes on a field trip with his class and crush, Becky. He sends her a note but loses her reply, upon which he follows it into the streets. He runs into an antique store and meets Balthazar, who is still as youthful as he was centuries ago. Realizing he is the one, Balthazar gives him the dragon ring which locks onto Dave's finger. Balthazar leaves to find the spellbook while Dave uses the ring to open a passage revealing the Grimhold. Upon opening it, it unleashes Horvath. Horvath and Balthazar battle for it, but end up imprisoned in a mystical vase. Afterward, Dave is traumatized and humiliated when he is rediscovered by his teacher and classmates with his pants wet.
The film then jumps forward to a 20-year-old Dave who is now a college physics student, who has gone through therapy for 10 years, and has once again made the acquaintance of Becky. Meanwhile, Horvath escapes the vase first and throws it out a window. Balthazar manages to escape just before the vase hits the ground and shatters. Horvath attempts to find Dave, who is the last person he remembers possessing the doll. He visits Dave and asks where the Grimhold is; when Dave can't tell him where the Grimhold is, he unleashes a pack of "wolf calender" wolves on Dave. Fortunately, Balthazar rescues him, turns the wolves into puppies, and they escape on a giant steel eagle which Balthazar has animated from one of the gargoyles on the Chrysler Building. Dave initially refuses to help Balthazar find the Grimhold, wanting only a normal life, but relents and agrees to help as long as, once Balthazar has the Grimhold, he leaves Dave alone. They track the Grimhold to Chinatown, where Horvath has already released the next Morganian, an evil wizard named Sun Lok. With Merlin's ring which he has held onto for the past decade, Dave manages to defeat Sun Lok, and Balthazar retrieves the Grimhold. After, Dave agrees to become Balthazar's apprentice and learn magical spells. Meanwhile, he becomes romantically involved with Becky against Balthazar's wishes.
Horvath enlists Drake Stone, a magician who uses his powers as an entertainer, to help him retrieve the Grimhold and defeat Balthazar and Dave, whom Horvath realizes is the Prime Merlinian. They attempt to kill Dave while he's alone, but Balthazar saves him and traps Horvath using a "Hungarian Mirror Trap". Dave demands to know the truth and Balthazar tells him everything: Morgana is the one trapped in the Grimhold, as well as Balthazar's lost love Veronica, and if Morgana escapes, she will attempt a spell known as "The Rising", which will raise evil sorcerers from the dead, and use them to destroy the world. Dave, as the Prime Merlinian, a descendant of Merlin and inheritor to all of his powers, is the only one who can defeat Morgana.
Horvath and Drake steal back the Grimhold and once they have it, Horvath uses a spell to steal all of Drake's energy, killing him, and takes his ring. He releases the witch, Abigail Williams in the last layer around the Grimhold and uses her to kidnap Becky. Once Abigail completes that, Horvath uses the same spell on her and steals all of her energy, as well as her magic pendant. Balthazar and Dave go to retrieve the Grimhold. Horvath threatens to kill Becky, forcing Dave to give up both the Grimhold and his ring. Balthazar goes on his own to defeat Horvath and Morgana, knowing that without the ring, Dave will be killed.
Horvath uses the added rings and energy to release Morgana, who still possesses Veronica's body, from the Grimhold. With all of their preparations in place, Morgana begins the spell. Horvath animates the Charging Bull sculpture at the north end of Bowling Green park, which then attacks Balthazar.
But Dave, with Becky's help and using his skills with plasma physics, reaches them in time to defeat Horvath and stop Morgana from completing the Rising. Balthazar then uses the same spell Veronica used before to absorb Morgana's soul from her body and into his. But Morgana escapes from Balthazar's body, killing him. She is about to incinerate them all until Dave stops her, using magic without the ring, proving that he is the Prime Merlinian. Using the same experiment he showed to Becky earlier, he discharges Morgana and destroys her using multiple plasma bolts; he then saves Balthazar by jump-starting his heart. Balthazar reunites with Veronica, giving her the necklace he wanted to give her before. Dave and Becky kiss and fly to France for breakfast on Balthazar's eagle.
After the end credits, a surprise ending is shown. Mickey Mouse's Fantasia wizard hat is seen sealed in a giant glass jar in a workshop. The camera pans over to reveal Horvath's hat on a nearby table. A hand then reaches out and takes it.
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The town of Westbrick is a rough place to live in. It is here that the young rookie cop Matthew lives with his wife. Meanwhile, notorious serial killers Billy and Barbara embark on a killing spree in order to get notoriety. Matthew gets his first assignment with his much older partner William when he unfortunately crosses paths with Billy and Barbara. William gets killed in the line of duty by Billy and Barbara but that's not enough for them: they torture and brutally murder Matthew's wife. Things get even worse for young Matthew when he loses his job, being wrongfully blamed for William's death and now charged with murder. Matthew finds himself isolated; there is no reason to count on a corrupt legal system and even less of a chance of being found innocent. He goes on a rampage for vengeance and slowly turns into a mad psychopath just like Billy and Barbara. 
