Brunhilde, a goldfish, escapes her underwater dwelling and washes up on a jellyfish before getting trapped in a glass jar. She is rescued by Sousuke, a young boy living with his mother, Lisa, in a coastal town while his father, Koichi, works as a fisherman at sea. After using her magic to heal a cut on Sousuke's finger, the boy names her Ponyo.
Ponyo's father, Fujimoto, a sorcerer who left human life to dwell beneath the waves, frantically searches for his daughter. Upon finding her, Ponyo rejects her original name and insists on becoming human. Using some of Sousuke's blood, she transforms into a girl with arms and legs and returns to the surface. This transformation unleashes potent magic that disrupts the natural order, causing erratic tidal shifts and destabilizing the Moon's orbit. To correct this imbalance and grant Ponyo the chance to remain human, Sousuke must complete an ancient test together with his new friend.