By the time of the game, Keelhaul Pete has already been eaten by a whale. In the present day, his old pirate crew find Pete and P.J. during a fishing trip and abduct them, believing Pete to be their returned captain. Pete goes along with this until the real Keelhaul Pete is spat by the whale and tries to have Pete and P.J. executed for supplanting him, but they are saved by Goofy and Max.
Keelhaul Pete is first shown being knocked unconscious by Goofy, who thought it was his friend Pete until Max pointed out it was really the pirate captain, who looked like their neighbor.
He eventually wakes up from his unconscious state, breaks inside his pirate ship and decides to duel with Goofy and/or Max. Keelhaul Pete will start the battle by spinning like a tornado and throwing bombs all over the arena. He can also jump around the arena and try to squash the player. The player as Max or Goofy has to throw the bombs back at him and he will take damage, but only when he is not spinning. They will also have to avoid his inescapable hook which takes away one life. From time to time, Keelhaul Pete will jump up onto a higher level and fire his blunderbuss pellets at Max or Goofy, which go in five directions. He will also call over two of his pirate goons to stall the player from defeating him.
Once Keelhaul Pete is defeated, Pete and P.J. are rescued from being crocodile food with the pirate captain taking their place hanging suspended from a rope.