From the heavenly object known as the Chaos Pearl, two elements are extracted: the Spirit Pearl and the Demon Orb. In an attempt to suppress their power, the Lord of Heaven sends the Spirit Pearl to Earth to reincarnate as Ne Zha, the third son of Li Jing, while the Demon Orb is scheduled to be destroyed by a lightning strike. However, because of a conspiracy by the Dragon King to steal the Spirit Pearl for his own son, Ne Zha is instead reincarnated with the Demon Orb.

With no way to remove the cursed effects of the Demon Orb, Ne Zha is raised under the belief that he will become the great demon hunter the Spirit Pearl destined for him to be. Fighting against his chaotic and mischievous nature, Ne Zha must decide whether to accept his evil fate or rebel against it to prove he is worthy of the future his parents foretold.

The film tells the mythological origins of Nezha, who is a protection deity in Chinese folk religion, and its story is loosely based on the literary version of the myth that forms two chapters of Investiture of the Gods, a Ming-dynasty shenmo novel, traditionally attributed to Xu Zhonglin, which incorporates various existing myths into a wider narrative.

The story has been adapted for the screen many times before, at least as early as 1927 or 1928, whether on its own (as in the 1979 traditionally-animated film Nezha Conquers the Dragon King) or as part of adaptations of the whole of Investiture of the Gods (such as the 2016 live-action film League of Gods).