The episode begins with Ash and his friends sitting in the Pokémon Center. While there, Ash gets a phone call from Professor Oak on the PC phone. He informs Ash that his Pokédex is now upgradeable. Ash uses a device within the PC to receive the upgrade. Ash, Misty, and Brock sit at a nearby table and begin to discuss the Pokémon that they wish would hatch out of the mysterious Egg that Ash found back at the Pokémon Fossil Canyon. Naturally, they all say their favorite Pokémon; Misty wants a Water-type and Brock, a Rock-type.
The discussion concludes and they leave the Pokémon Center. Just outside, they find the Team Rocket posing as Egg sellers. The three have a whole basketful of Eggs that look just like Ash's mysterious Egg. Team Rocket tries to talk them into trading or buying one of their Eggs and when the group politely refuses, Jessie and James resort to throwing all of their fake Eggs in the air. The real Egg, that Brock was holding, gets stolen in the confusion caused by the multitude of lookalikes.
Team Rocket runs out of sight, escaping with the real Egg! Ash, Misty and Brock are stuck with a fake. Meanwhile, in Team Rocket's small hiding shack, Meowth takes care of the Egg. While it is in Meowth's possession, the Egg is lavished with attention and care. Meowth sleeps with it, sings to it and even eats with it, guarding it from anything he feels might damage or harm his new charge.
The three young adventurers follow a trail of broken red blue and green eggshells until they reach the shack in which Team Rocket is hiding. They decide to burst in, even though it may be dangerous to do so, and get the Egg back.
Ash sends out Pidgeotto, Misty sends out Staryu and Brock sends out Geodude. They all quickly explode into the shack, surprising Team Rocket. James sends out Weezing, who gives a Poison Gasattack, making Ash and others cough and gasp for breath. The person in possession of the Egg at this point is obscured by the gas. The characters all lunge for the little white Egg. The Egg is tossed up and down frantically, much like in a game of football! Through much controversy among the shack's occupants, Pikachu ends up with the Egg and gives it back to Ash. At that moment the Egg begins to glow and break open, beginning to hatch.
Misty, enthralled with this new event, jumps in, pushing everyone else out of the way to get a closer look at the hatching Pokémon. When she does get a hold of it, the Egg hatches, revealing a new, unidentified Pokémon. Ash and others are all surprised, especially Team Rocket, who instantly want to steal it. Ash points his newly updated Pokédex at the Pokémon, identifying it as a Togepi.
Togepi, unlike other Pokémon, will not bond with just anybody, to Ash's and Brock's disappointment. To everyone's surprise, the baby Togepi chooses Misty! Because Misty is the first thing that the Pokémon saw after hatching, it thinks that Misty is its mother.
This newly hatched Pokémon causes quite a fuss among the group. Ash feels that he should have it because he found it; Brock feels it should be his because he cared for it before Meowth; Meowth wants it because he looked after it just before it hatched; Jessie and James both just want it! Meowth points out to them that his partners didn't do anything to help in Togepi's growth. Misty feels she should have it, as Togepi likes her best. They all decide to have a Pokémon tournament to determine who should have Togepi.
Meowth panics because he has no Pokémon, and goes and asks Jessie and James for theirs. They refuse, as he didn't let them participate in the tournament; Meowth then remembers that he is a Pokémon and decides to battle for himself. After the draw, the final match ends up being between Misty and Ash, in their first battle since Cerulean City. Ash sends out Bulbasaur and Misty attempted to send out Staryu, but instead Psyduck popped out. Misty instructs Bulbasaur to attack Psyduck on the head to worsen its chronic headache, but Ash decides to use Bulbasaur for a different manner, and commands it to lick Psyduck on the head and tickle it until Psyduck went back in its Poké Ball. Ash and Meowth battle, but it is cut short after one Thunderbolt by Pikachu. Thus, Ash is the winner of the tournament. Jessie and James drag a crisp, sobbing Meowth away. After the tournament, Togepi still doesn't want to go with Ash, or Brock, instead still choosing Misty.