Plot
In a ghost train bound for Ghost Central, Casper is unaware of where he is or that he is a ghost. He is kicked off in the city of Deedstown and realizes his own nature after unintentionally scaring a bunch of the town's citizens. Meanwhile, Chris Carson, a lonely boy obsessed with the supernatural, has a strained relationship with his work-obsessed father Tim, who plans to demolish the historical Applegate Mansion to build a new mini-mall. A group of protestors, led by Chris's teacher Sheila Fistergraff, oppose the demolition, and the mansion is inhabited by the Ghostly Trio, consisting of Stretch, Fatso, and Stinkie. The Trio terrorize both the demolition crew and the protestors, cutting the demonstration short. Chris witnesses the commotion and wants to join the Trio, but they reject him because he is human.
At Ghost Central, where new spirits are trained in the art of haunting, the ghoul Kibosh is furious to discover Casper's absence and orders his spineless assistant Snivel to retrieve him. Back in Deedstown, the press confirms that Tim and Mayor Johnny Hunt will proceed with the demolition despite the setback, with the mayor threatening to dismiss Tim if he fails. Chris encounters and befriends Casper, who is surprised that a human is unafraid of him. Chris insists on teaching Casper to be a real ghost and introduces him to the Trio. The Trio, delighted that Casper has not been educated by Kibosh, decide to train him themselves, hoping to prove their worth and end Kibosh's pursuit. Snivel overhears this and reports the plan to Kibosh, enraging him. Casper masters invisibility, but fails at every other lesson. His desire to be friendly rather than frightening leads the Trio to expel him.
After Tim misses an open house at Chris's school, he promises to spend more time with him. Chris continues teaching Casper, who successfully uses his powers on the bully Brock and gets him into trouble with the principal, after which Casper begins helping people around town. When Tim again fails to appear at a parent-teacher conference, Chris and Casper prepare dinner for him. Snivel witnesses Casper acting in service to a human and informs Kibosh, who decides to retrieve Casper himself. The Trio discover Casper's good deeds and abduct him to save their reputation, which ruins Chris' opportunity to introduce Casper to Tim. Tim dismisses Chris and leaves to see the mayor. Feeling betrayed by Casper, Chris runs off, but is captured and locked inside the mansion by Brock and his gang, unaware that a professional bomber hired by Tim has planted an explosive.
The next morning, Kibosh arrives in Deedstown, captures the Trio, and sends Snivel after Casper. Tim learns that Chris ran away and meets Casper, and they both set out to find him. Casper races to the mansion just as it is about to explode, while Tim, riding with Sheila, arrives in time to extract Chris as Casper swallows the bomb, which detonates harmlessly inside him. Kibosh is impressed by Casper's technique, which Casper claims was taught to him by the Trio, and Kibosh allows the Trio to stay and haunt. The Trio, in turn, secure permission for Casper to stay with them by claiming to be his uncles after Kibosh stresses the importance of family, and Kibosh departs peacefully. Chris and Tim reconcile, a classmate turns on the bullies and apologizes to Chris, and the Trio hang Brock's gang from a tree by their underwear. Casper proclaims himself Casper the Friendly Ghost.
