Plot
In the magical world of Dream Land, Little Engine is a small shunter who dreams of becoming a Dream Hauler, responsible for delivering dreams to the Real World. While attempting to pull a full train of cars for Big Locomotive, she causes a traffic jam and is reminded by the Tower that she is only allowed one boxcar at a time. Encouraged by the wise Old Rusty, Little Engine continues to aspire to greater things.
In the Real World, a boy named Richard is bullied by Scott and Stretch, who steal his grandfather’s pocket watch. He runs to a park and hides inside a train, unaware that Rusty is about to depart for Dream Land. Richard’s accidental arrival in Dream Land causes the tunnel between worlds to collapse, stranding him and the trains. The Tower demotes Rusty to track-cleaner, upsetting Little Engine. Learning from Rusty of an old route over Dream Mountain, she offers to return Richard to the Real World if Rusty is reinstated, and the Tower agrees.
Little Engine and Richard set out but are nearly run down by the high-speed Evening Express, which forces them off the tracks. They press on through Mushroom Forest and a prairie, where they encounter Engine 35’s birthday train, derailed by the tunnel collapse. When the larger engines—Shiny Passenger Train, Freight Train, and Big Locomotive—refuse to believe the old tracks exist, Little Engine, Richard, and the toys aboard the birthday train decide to continue alone. The toys include Bev the clown, Hudson the sock monkey, Lou and Bud the giraffes, Jillian the ballerina, Major the toy soldier, and Ace the airplane.
The group locates the old tracks and begins climbing Dream Mountain. Crossing a rickety wooden bridge, part of the structure collapses, but Richard is saved by Little Engine and Ace. Using a railway mail pole to replace the missing rail, they finish crossing. That night, Little Engine’s leaking water tank leaves her stranded until Richard and Hudson apply her emergency brake.
A dark gray steam locomotive appears, claiming he can take the toys to the Real World. He is revealed as the Nightmare Train, an evil engine who spreads nightmares and plans to use Richard to terrorize the Real World. Richard faces hallucinations of the bullies aboard the Nightmare Train but finds the courage to resist. Ace escapes to help Little Engine, refilling her tank at a nearby tower. Richard falls from the Nightmare Train and reunites with Little Engine, who fixes her leak and chases the Nightmare Train, rescuing the others. With great effort, Little Engine climbs to the mountain’s peak, opens the portal to the Real World, and delivers the toys. Almost no time has passed when Richard returns to his school.
After saying farewell to Little Engine and the birthday train caboose, Richard stands up to Scott and Stretch, reclaiming his grandfather’s watch. The bullies are punished by the principal, while Richard reconciles with his friend Marcus and chooses to keep his Dream Land adventure secret. Back in Dream Land, Little Engine is promoted to Dream Hauler, Rusty is reinstated and honored with a ticker tape parade, and the toys find new homes in the Real World. The Nightmare Train, defeated, is left derailed on a snowbank.
