In 1935, Indiana Jones narrowly escapes the clutches of Lao Che, a crime boss in Shanghai in the Republic of China. With his 11-year-old Chinese sidekick Short Round and the nightclub singer Willie Scott in tow, Indy flees Shanghai on an airplane that, unknown to them, is owned by Lao. While the three of them sleep on the plane, the pilots parachute out, and they leave the plane to crash over the Himalayas while dumping its fuel. Indy, Shorty, and Willie discover this and narrowly manage to escape by jumping out of the plane on an inflatable raft, and then riding down the slopes into a raging river. They come to Mayapore, a desolate village in northern India, where the poor villagers believe them to have been sent by the Hindu god Shiva and enlist their help to retrieve the sacred Sivalinga stone stolen from their shrine, as well as the community's children, from evil forces in the nearby Pankot Palace. During the journey to Pankot, Indy hypothesizes that the stone may be one of the five fabled Sankara stones that promise fortune and glory.
The trio receive a warm welcome from the Prime Minister of Pankot Palace, Chattar Lal. The visitors are allowed to stay the night as guests, during which they attend a lavish but grotesque banquet given by the young Maharajah, Zalim Singh. Chattar Lal rebuffs Indy's questions about the villagers' claims and his theory that the ancient Thuggee cult is responsible for their troubles. Later that night, Indy is attacked by an assassin, leading Indy, Willie, and Shorty to believe that something is amiss. They discover a series of tunnels hidden behind a statue in Willie's room and set out to explore them, overcoming a number of booby-traps along the way.
The trio eventually reach an underground temple where the Thugs worship the Hindu goddess Kali with human sacrifice. They discover that the Thugs, led by their evil, bloodthirsty high priest Mola Ram are in possession of three of the five Sankara stones, and have enslaved the children to mine for the final two stones, which they hope will allow them to rule the world. As Indy tries to retrieve the stones, he, Willie, and Shorty are captured and separated. Indy is whipped and forced to drink a potion called the "Blood of Kali", which places him in a trance-like state where he begins to mindlessly serve the Thugs. Willie, meanwhile, is kept as a human sacrifice, while Shorty is put to work in the mines alongside the enslaved children. Shorty breaks free and escapes back into the temple where he burns Indy with a torch, shocking him out of the trance. After defeating Chattar Lal, also a Thuggee worshiper, they go back to the mines to free the children, but Indy is caught up in a fight with a hulking overseer. The Maharajah, who was also forcibly entranced by the "Blood of Kali," attempts to cripple Indy with a voodoo doll. Shorty spars with the Maharajah, ultimately burning him to snap him out of the trance. With his strength returned, Indy kills the overseer. The Maharajah then tells Shorty how to get out of the mines. While Mola Ram escapes, Indy and Shorty rescue Willie and retrieve the three Sankara stones, the village children escape.
After a mine cart chase to escape the temple, the trio emerge above ground and are again cornered by Mola Ram and his henchmen on a rope bridge high above a crocodile-infested river. Using a sword, Indy cuts the rope bridge in half, leaving everyone to hang on for their lives. Indy utters an incantation which causes the stones to glow red hot. Two of the stones fall into the river, while the last falls into Mola Ram's hand, burning him. Indy catches the now-cool stone, while Mola Ram falls into the river below, where he is devoured by a Mugger crocodile. The Thugs then attempt to shoot Indy with arrows, until a company of British Indian Army riflemen from Pankot arrive, having been summoned by the palace Maharajah. In the ensuing firefight, many of the Thuggee archers are killed and the remainder are surrounded and captured. Indy, Willie, and Shorty return victoriously to the village with the children and give the missing stone back to the villagers.
- The Griffin Family (Peter Griffin, Lois Griffin, Meg Griffin, Chris Griffin, and Stewie Griffin), Vinny Griffin, Glenn Quagmire, Cleveland Brown, Joe Swanson, Little Bear, Duck, Cat, Owl, Hen, Emily, Lucy, Doug Funnie, Skeeter Valentine, Belle, Dudley Puppy, Kitty Katswell, Hanah Streaker, Roberta Bravo, Judy Hopps, Nick Wilde, Blythe Baxter, Zoe Trent, Pepper Clark, Penny Ling, Sunil Nevla, Vinnie Terrio, Minka Mark, Russell Ferguson, Gail Trent, and Mitzi guest star in this film.
- The storyline continues in Brian and the Eeveelution Family's Adventures of Indiana Jones and the Raiders of the Lost Ark.