Ash arrives at the Canalave Gym, only to hear bad news: the Gym Leader is away on Iron Island, and the locals are all sleep-deprived due to horrible nightmares! Officer Jenny blames the Darkrai that visits Canalave City once a year; a Cresselia from Full Moon Island always drives Darkrai away, but Darkrai is early this year and Cresselia is nowhere to be found. Officer Jenny bought a Lunar Wing charm to ward off bad dreams, but it's not working. When Brock inspects it, he realizes it's just a fake made from a lacquered Pidgey feather! An investigation leads Ash and the gang to Team Rocket, who are using a nightmare-generating machine to create a market for their fake Lunar Wing charms.

Pikachu and Ash knock out Team Rocket in no time, and everyone looks forward to a good night's sleep. But that night, the nightmares return! Concerned that Darkrai may be in town after all, Jenny takes our heroes to Full Moon Island in search of Cresselia. Dawn's Swinub tracks Cresselia's scent to a cliff known as Cresselia's shrine. Sure enough, Cresselia appears, but Team Rocket's Magikarp sub pops out of hiding and snags everyone in a net. Swinub tries to fight Team Rocket to save everyone, but it's no good—until it evolves into a mighty Piloswine and smashes the sub with a single hit!

As soon as Cresselia is freed, Officer Jenny asks it to help protect the people of Canalave. Cresselia flies to the city and calls Darkrai out of hiding. Darkrai is lurking near the ruins of Team Rocket's nightmare machine, almost as if it was the machine's signal that lured Darkrai to town. Cresselia challenges Darkrai, and Darkrai wisely decides to retreat. Its work done, Cresselia disappears as well. At last, everyone can enjoy a peaceful night of sleep. Ash will surely need that rest so he can start training for his Canalave Gym challenge!