Gordon the Big Engine is unhappy about having to pull goods trains and tells Edward the Blue Engine one morning that he won't have to pull them for much longer because Sir Topham Hatt, the railway's director, is hiring a new engine. Later, Gordon becomes stuck at the foot of a steep hill on the main line. With no other engines available, Edward is sent to help Gordon up the hill by pushing the train from behind.
Later, Edward is shunting at Knapford Station when he hears James the Red Engine (in his original black paint) talking to Thomas the Tank Engine, Sir Topham Hatt's new teal-colored tank engine. Gordon is rather skeptical of his size, which upsets Thomas, until Sir Topham Hatt arrives and asks Edward to teach him how to work in the yard. Initially, Thomas manages to occasionally get in the way and sometimes causes minor accidents, which Gordon and James seem to sometimes find funny. He also cheekily whistles at Gordon one day while he is resting and wakes him up, much to Gordon's displeasure.
One stormy night at Tidmouth Sheds, Thomas meets Henry the Green Engine as he fearfully runs into the shed to hide from the rain and Edward tells Thomas about how Henry once stayed in a tunnel because of his fear of rain ruining his green paint with red stripes. The following day, Thomas is sent to the Sodor Steamworks where he is repainted blue and given the number 1. Gordon explains that the last #1 engine was a vertical-boilered engine called a coffee pot and orders Thomas to fetch his express coaches. Thomas accidentally tries to take two four-wheeled coaches called Annie and Clarabel, who belong to James. James later returns Annie and Clarabel to the yard, causing Thomas to notice a burning smell. Later, seeing Henry at the water tower, Thomas asks him about his fear of the rain.
The following day, Thomas takes longer to start than usual and arrives at Knapford with Gordon's coaches later than usual. Still cross with Thomas for waking him up, Gordon starts sooner than expected, before Thomas can be uncoupled. By the time Gordon reaches Wellsworth, Thomas is worn out and is uncoupled. Back at Knapford the following day, Thomas meets Jerome and Judy, two cranes of the breakdown train while shunting in the yard. James arrives with a goods train and prepares to take Annie and Clarabel, while Thomas again notices the strange burning smell which is coming from James' wooden brake blocks.
The next morning, Henry isn't able to leave Tidmouth Sheds and Thomas, being the only engine left, is instead asked to pull his train. Unfortunately Thomas starts too soon and leaves the coaches behind, much to Sir Topham Hatt's dismay. Thomas sadly returns and is coupled to the train, but Gordon, James, and Henry tease him about it at Tidmouth Sheds later that night. Edward kindly offers to let Thomas take a goods train for him the next day. However, Thomas gets too excited to take Edward's advice about the Troublesome Trucks which leads him to almost have an accident. Sir Topham Hatt arrives and tells Thomas to learn about freight cars and suggests that he should keep him in the shed if Thomas is not prepared to learn. He then orders Thomas and Edward to stay in the yard until Thomas knows enough about freight cars as Edward does. During this time, Thomas manages to help Henry overcome his fear of rain.
A few days later, Thomas and Edward are working when a frightened James rushes by because the Troublesome Trucks are pushing him and causes his wooden brake blocks to catch fire. Thomas attempts to couple up behind James' train to slow him down, but the trucks' speed and weight cause James to derail on a bend before Thomas can couple up. Thomas returns to Knapford and fetches Jerome and Judy to rescue James who he takes to the Steamworks. Later that night, everyone congratulates Thomas; even Sir Topham Hatt who announces that James will have proper brakes, a few repairs, and a new coat of paint and Thomas, due to his unselfish bravery and heroism, will have his own branch line. Everyone is happy for Thomas, except Gordon who asks who will fetch their coaches because tender engines don't shunt; Sir Topham says the other engines will have to fetch their own coaches until he finds another small engine who can.
A few days later, James returns to the yard with new brakes and a fresh coat of red paint. Thomas is given Annie and Clarabel to run his branch line. Arriving at Ffarquhar Station, he meets Glynnthe coffee pot engine who asks him to look after the branch line and wear the number one with pride.
During the end credits, various scenes from the "Railway Series" books are shown as the song "Really Useful Engine" plays.