Fifth grader Kyle Alexander and his best friend, Carlos, are delighted when Kyle's mom brings home a hard-to-find box of Scrunchy Corn Flakes with the Breakfast of Superheroes promotion. These boxes contain a toy copy of the magic ring that once belonged to the brother of the city's great superhero, Captain Nightmare. But the ring in the box doesn't behave like a toy. It eludes capture, makes loud noises, and grabs onto Kyle's finger and won't let go. Carlos, won't believe that the ring won't come off and is angry that Kyle kept the ring after promising that he, Carlos, could have it.
Kyle's suspicions about this ring grow when he makes an amazing escape from the fangs of the nasty neighborhood dog. Then, when his nap in the backyard ends up with him floating above his house, he and Carlos realize the truth: somehow, he got the real magic ring that gives the wearer super powers and makes him Captain Nightmare's partner.
Captain Nightmare had been keeping this powerful ring locked up, waiting to find someone worthy of its powers, but loaned it to the Cereal Company for one day so they could create toy copies of the ring. Nightmare is livid, thinking that Scrunchy lost the ring, but a more likely explanation is that the ring grew tired of being locked up and ran away. Magic rings sometimes do.
Though Kyle and Carlos have both long dreamed of being superheroes, Kyle is not nearly as adventuresome as his friend. He is clumsy and is terrified of a great many things, including sleeping in the top bunk bed. He feels utterly unworthy of the ring's powers. Though Carlos is quite jealous that Kyle has the ring, he cheers for Kyle and prods him into action. He helps him to pick out what turns out to be a comical costume and tries to pick a name for Kyle's superhero identity.
When Kyle tries to use his powers by flying out his bedroom window, he has a painful meeting with the bushes below his window. After he figures out how to activate the power of the ring, the ring takes him on a wild ride, with Kyle screaming in terror. After a couple of flights, he starts to get the hang of the ring, but is still clumsy with it.
When Carlos and the Alexander family hear a report of a passenger plane that is in trouble, Carlos manipulates Kyle's parents into punishing Kyle to get him away from the dinner table. Kyle reluctantly flies to the rescue, only to be overwhelmed by the size of the job at hand. He leaves without doing anything to help save the plane or even speaking to Captain Nightmare.
Later, Kyle returns to the sky and finds a restaurant being robbed. He flies to apprehend the thief, only to freeze when he sees how big and mean the thief looks. Kyle is embarrassed and ashamed and finds himself lying to his best friend to cover up his fears.
Determined to be worthy of the ring, he undertakes another adventure and encounters the city's most dangerous crook, Rocky the Rat. Rocky is threatening a woman from whom he has been extorting money. Kyle lands and hides behind a tree to observe, and is so terrified that he can hardly stand. He considers flying away, hoping that the police or another superhero will show up to handle the job, but realizes he must either face Rocky or let the woman die. When he summons the courage to confront Rocky and his gang, they mock him and hurl insults at him. After Kyle accidentally dents the gang's car, a henchman named Eddie tries to smash him with a hammer. Kyle tries to fly away, but the ring won't let him.
