The film begins with Marnie Piper and her mother, Gwen, arguing over why she and her younger siblings Dylan and Sophie can never go out for Halloween and wanting to go to a costume party that the "whole world is going to". Gwen patiently explains, but with no detail, it is little surprise that Marnie still has a problem with her mom's order.
Gwen has more or less restored order when her mother Aggie, who is an expert witch, shows up for her annual Halloween visit. The kids are happier to see Aggie than Gwen is, and it is soon shown why: Aggie openly encourages the kids to get more involved in all things Halloween, and Gwen is nearly powerless to stop her.
Aggie seems especially intent on training Marnie as a witch, since it is Marnie's 13th Halloween. Marnie, of course, has no idea about any of this. Aggie drops a huge hint as she is about to head home: reading the kids a bedtime story, when Sophie sees a drawing of a witch that closely resembles her big sister, Aggie does nothing to stop Marnie from imagining such a thing.
Gwen and Aggie get into an argument about all of this, and Gwen insists Marnie will be raised as a normal person and not a witch. Aggie says she disagrees with this, but actually she is there for another reason: people have suddenly started mysteriously disappearing. Gwen thinks they just moved, but Aggie says it is not that simple.
Aggie desperately asks for Gwen's help, but Gwen declines. Aggie is distraught by Gwen's disregard for the safety of her old home and leaves, turning the chicken leftovers into a live chicken on the way out. Gwen is not aware Marnie was watching this the whole time.
Marnie runs back upstairs to tell Dylan what she just saw, and Dylan says she's crazy. They then follow Aggie covertly to a previously non-existent bus stop. When the bus indeed arrives, Marnie and Dylan sneak on board. Suddenly, the bus shakes violently and the bus is filled with flashing lights...and before they know it, the bus is landing in Halloweentown.
Aggie doesn't see Marnie and Dylan getting off the bus. At the same time, Marnie and Dylan don't see Sophie getting off the bus. Dylan notices her, and Marnie asks what she's doing here. Sophie says she was only pretending to sleep; she heard everything Marnie told Dylan, and followed them. They all begin to look for Aggie, who they have los, when the mayor Kalabar approaches them. He whistles for the cab, which is driven by Benny, a skeleton with a bad sense of humor.
The three siblings find their grandmother's home, and against her better judgment, Aggie decides not to take them home immediately. She says she'll start Marnie's witch training, but has to take care of the bad thing first. She shows her grandchildren what she is talking about: in the cauldron, a vision of a hooded demon appears, laughing maniacally. Aggie has a talisman that she says can defeat this demon, but her witches brew is defective. So she has to take the kids into town and get the ingredients to make her own.
In town, Marnie discovers a broom shop, and the family is introduced to Luke, who looks like a normal human kid. He makes a clumsy pass at Marnie, which she turns down on the spot; after Luke offers to take Marnie out for an ice cream, she stares daggers at him. Benny earlier explained that Luke once looked like a troll, but claimed a shadow demon made him handsome.
Marnie picks a broom, and she and Aggie take it for a test drive. When they get back, a distressed Gwen has shown up and orders the kids to return home immediately. Marnie fights her briefly, but eventually knows she cannot win once her mother decided to ground her.
Gwen can't find another bus back to the mortal world, and when she tries to see if the mayor can do anything, she is shocked that the mayor is Kalabar, her old boyfriend. When Kalabar briefly leaves to handle another problem, Gwen and her kids see Aggie walking somewhere with Luke. Sensing Aggie might be in trouble, they follow Aggie and Luke to an abandoned movie theater.
Once inside, Gwen and Aggie find themselves battling the hooded demon that they had previously seen in the cauldron. The demon freezes Aggie and Gwen with an evil spell, and suddenly Marnie finds herself in charge.
She decides to finish what Aggie started, with some help from Dylan and Sophie, by gathering the ingredients for the witch’s brew that will hopefully make the talisman work. They are successful, and soon find themselves battling the demon, who reveals himself to be none other than Kalabar himself.
With the help of Luke, who has realized the error of his ways, Marnie disables Kalabar long enough but is affected by the spell just as she is about the sleep she remembers what happens and drops the talisman light up the jack o lantern to unfreeze Aggie and Gwen, as well as all the other Halloweentown citizens whom Kalabar had trapped in the theater previously Gwen and Aggie rush to the kids to find out what happened. Marnie, Gwen ,and Aggie confront Kalabar. Kalabar is apparently bitter over the fact that their kind was forced to relocate to this new world because humans wouldn't accept them, and that Gwen passed him over years ago for a mortal man.
But the three of them alone aren't enough. Sophie has also been showing signs of possessing magic, and Dylan, when angered, also displays powers himself despite trying to deny it. The five of them combine their powers and destroy Kalabar using the talisman.
Gwen agrees to let Marnie start witch training and even invites Aggie to live with them. The film ends with the family going on to the bus to the mortal world, with a happy goodbye and a thanks to Luke as the bus driver, and blast off.
- Debbie Reynolds - Aggie Cromwell. The mother of Gwen and grandmother of Marnie, Dylan and Sophie.
- Judith Hoag - Gwen Piper. The daughter of Aggie and the mother of Marnie, Dylan and Sophie.
- Kimberly J. Brown - Marnie Piper. The first born child of Gwen and the main character.
- Joey Zimmerman - Dylan Piper. The second born child of Gwen.
- Emily Roeske - Sophie Piper. The last born child of Gwen.
- Phillip Van Dyke - Luke. A goblin. Later revealed he has a crush on Marnie.
- Robin Thomas - Kalabar. The mayor of Halloweentown and the main antagonist of the film.
- Rino Romano - Benny (voice). The skeleton taxi driver.
Halloweentown was followed by three released sequels; Halloweentown II: Kalabar's Revenge, Halloweentown High, and Return to Halloweentown. Return to Halloweentown was the only movie in which Kimberly J. Brown did not reprise her role as Marnie Piper; the role was instead played by Sara Paxton. Emily Roeske also did not reprise her role in the final film, but her character was mentioned briefly.
- The name of the film is not confused with Halloween Town.
- Kimberly J. Brown was interviewed for The Tiara Talk Show about working on this film and its sequel.