On the Planet Eternia, the forces of Skeletor have managed to seize control of Castle Grayskull and capture the Sorceress of Grayskull. The Royal Family goes into hiding. Skeletor is planning to exploit Grayskull's hidden powers when the "Great Eye of the Galaxy", a portal in the castle's throne room, opens and Eternia's moon is correctly aligned with it.In the meantime, the remaining Eternian forces are scattered and outnumbered. One of Skeletor's patrols of Centurions is attacked by Eternia's greatest warrior and Skeletor's archenemy. With the help of Man-At-Arms and his daughter Teela, they decimate the Centurions. He-Man rescues a Thenurian inventor/locksmith named Gwildor, who reveals to his rescuers his newest invention: a "Cosmic Key" that can open a portal to any location in time and space. Skeletor stole the Key from him and used it to get into Castle Grayskull, but Gwildor still possesses the prototype. When his home is attacked by Skeletor's Centurions, lead by Karg. Gwildor leads He-Man and his friends into a secret passageway leading directly to the caverns underneath Castle Grayskull.The Throne Room is empty, much to He Man's concern. While Gwildor tries to free the Sorceress from her confines, the group is surrounded by Skeletor and his troops. During the panic, Gwildor uses his key to open a random gateway which He Man and his friends escape through. Their destination seems to be Earth, but on arriving there, the key gets misplaced and the Eternians split up to find it. Meanwhile, in the nearby town of Whittier, California, two teenagers, Julie Winston and Kevin Corrigan, discover the Key in a flowerbed in Lauralton Cemetery and start pressing its buttons, suspecting it to be some sort of music device. At Grayskull, Skeletor's second in command Evil-Lyn tracks the key to Earth and prepares a small team of mercenaries to recover it. They consist of Saurod, Blade, Beastman and their leader Karg.Kevin and Julie are spending the evening after hours at their high school because Julie is moving away that night, following a personal tragedy and wants to say her goodbyes to both Kevin and the school. Kevin, an aspiring musician, mistakes the object for a Japanese synthesizer and takes it to his friend Charlie, who owns a local music store (Charlie's Music Store, located in Landmark Mall) to get a second opinion, leaving Julie in their high school gym. Skeletor's mercenaries arrive a beat up Carl the Janitor and pursue Julie through the school. She runs out of the school and down the street into a warehouse. He Man is searching nearby and hears Julie in distress. While, Julie is hiding, the mercenaries battle with He-Man until Teela and Man-At-Arms arrives to help He-Man, chasing the mercenaries away. Karg and the mercenaries travel back to Eternia.The Mercenaries return to Grayskull where, incensed by their failure, Skeletor sends them back to Earth with a larger force, under the command of Evil-Lyn.Meanwhile, Kevin returns to the school which has nearly been burnt down after Julie's escape. The detective on scene, Hugh Lubic, takes Kevin to Julie's house to look for her. Over the phone, Julie reveals to Kevin the importance of the Cosmic Key. But before Julie can arrive, Lubic gets interested in the device and takes it from Kevin, suspecting it to be stolen. Immediately afterwards, Evil-Lyn's Battle Barge arrives on Earth. Evil-Lyn captures and interrogates Kevin with the Colar Of Aldruber, then leaves to acquire the Key from Lubic.When He Man and co. arrive at the house, Julie and Kevin decide to lead the Eternians to where Lubic has taken the key - a music store, where Kevin had been to earlier on. A battle ensues in the store, with He Man and Man-at-Arms holding the Centurians back while Gwildor tries to open a doorway back to Eternia. During the confusion however, Evil Lyn has masqueraded as Julie's mother Catherine, who was supposed to have died in a plane crash. While Lubic, Kevin and Gwildor argue, Julie is persuaded to steal the key for her 'mother' and doesn't realize the deception until it's too late. Evil Lyn and the others pull out and He Man gives chase. But then another doorway opens and this time, it's Skeletor himself who arrives on Earth.Skeletor triumphantly arrives on Earth on his Battle Barge, accompanyed by Sky Centurions. While the Centurians march down the deserted street, He Man uses a stolen hover-board and begins to battle the Sky Centurions and retrieves the Key from Evil-Lyn using Gwildor's grappling claw to swoop in and take the key back from Evil Lyn's grasp. But Skeletor has surrounded his friends including Julie and Kevin and sets a trap for He Man. Despite the overwhelming numbers, He Man still fights off the troops until Skeletor delivers his ultimatum. Either He Man surrenders and becomes his slave, or he'll kill He Man's friends. With no choice but to surrender, He Man leaves and returns with Skeletor, while the others are left to 'rot' on Earth. Worse still, Julie was critically injured by Skeletor's poisonous magic and the second key was damaged beyond repair.Back at Grayskull, Skeletor prepares for the 'Great Eye' to open and receive the ultimate power, while torturing He Man and demanding him to kneel before he his new master, while Blade whips him with an electro whip. Gwildor, meanwhile, tries to repair the key but explains that the tones needed were erased. Kevin goes back to the music store takes a keyboard which he can use to create the tones and open the portal. The remaining Eternians combine their technology to create a new Key, using the modern-day keyboard to play the special sequences of tones, which Kevin had memorized. Lubic tries to arrest everybody and gets caught through the portal and is transported to Eternia with them. On Eternia, the Great Eye opens and Skeletor is transformed into an armored warrior god. As portal opens inside of Grayskull, Lubic, Kevin, Man-at-Arms and Teela all begin to fight off the Centurians from behind, covering He Man while he breaks free from his chains and recovers the Sword Of Power. During the battle, Evil-Lyn tells Karg to prepare for a retreat. Evil-Lyn, Beast-Man, Saurod and Blade secretly slip away. As Skeletor and He Man engage in combat, they fight until they are outside on Castle Grayskull's draw bridge. He Man breaks Skeletor's Havoc Staff and his new powers and god-like status vanish. He Man tells the weakened Skeletor that it's over, but Skeletor draws his hidden sword and lunges at He Man. The fight continues, but He Man manages to knock Skeletor down into the Bottomless Abyss that surrounds Castle Grayskull.Now victorious and with Julie healed by the Sorceress, it seems like peace at last on Eternia. Kevin and Julie say goodbye to the Eternians and Gwildor opens a doorway back to Earth. Lubic decides to stay behind on Eternia, as his retirement. When Julie awakes in her bed, she finds her parents downstairs, alive and well and about to take their fateful flight. Julie stops them from leaving and finds Kevin, who confirms it wasn't all a dream and holds out their souvenir of Eternia, a blue marble with the image of He Man holding the Sword of Grayskull high above his head.