The film takes place in the fictional town of Wilton, where a new toy called the "Glob-o-matic" is introduced. Unbeknownst to the children, the Glob-o-matic toys are actually small, remote-controlled robots designed by a company called Glob-o-matic Corporation. When a computer chip, known as a "Gargamel chip," is introduced into the toys, they become autonomous and begin to develop their own personalities.

As the toys begin to come to life, a teenager named Chip (Josh Hartnett) and a young girl named Jill (Christy Carlson Romano) find themselves caught up in the battle between the two factions. The toys eventually turn on their human creators, and chaos ensues.

The toys are divided into two factions: the Gorgonite toys, which are designed to look like monsters, and the Chip Soldiers, which are designed to look like more traditional action figures. The Gorgonites, led by a toy named Archer, are programmed to be evil and destructive, while the Chip Soldiers, led by a toy named Glob-o, are programmed to be good and heroic.