One night, Haroud goes to Abis Mal's hideout with a bag. He takes a chest out of the bag and Abis Mal finds powder inside. He throws the powder in the fire and a smoke demon appears. The smoke demon tells the thugs that he can steal for them, which gives them an idea. Abis Mal and Haroud sell containers of powder at the marketplace. When they see Jasmine and Iago, they quickly disguise themselves. Jasmine goes to them and takes the containers of powder to help Agrabah.
At the palace, Aladdin and Genie go to Jasmine to tell her that they found water at a desert. Jasmine shows Aladdin the powder, telling him that they would be great for the city, but Aladdin tells her that they could be dangerous. Jasmine refuses to listen and tells him that he's jealous. At night, smoke demons are carrying treasure. At Aladdin's hovel while everyone is sleeping, Abu gets cold and puts powder in a fire. Then, a smoke demon comes out and steals his fez. The monkey wakes everyone up to tell them what he saw and that the powder has something to do with it.
Aladdin goes to the palace to let Jasmine and The Sultan know and tells Jasmine that they should test the powder. Jasmine refuses to believe him but she lets Aladdin test it. When he does so, nothing happens. While Jasmine is convinced that she was right, Iago counters that Aladdin simply didn't use enough of the powder. The parrot snatches the powder sack from Al's hand, then dumps the entire thing into the fire, resulting in a huge blast. Sure enough, another smoke demon emerges from the fire. It takes the jewel out of the Sultan's turban. After a brawl between the demon and Genie, Aladdin puts it in a container. Jasmine then admits that she was wrong and that Aladdin was right. Aladdin lets the smoke demon out so that the gang can follow it.
Abis Mal's hideout is now filled with treasure, with smoke demons flying around at the ceiling. Aladdin and the others appear and the angry Jasmine tries to strangle Abis Mal for tricking her. The smoke demons get fused up and become a huge smoke demon named Sootinai. Sootinai breaks open the roof of Abis Mal's hideout, setting the building on fire. He then decides to burn every single building in Agrabah.
Aladdin and the others get inside a building and, to their horror, find barrels of lamp oil. Sootinai throws a barrel that is on fire inside the building the gang is in. Jasmine then remembers that Aladdin told her that he found water in the desert and gets an idea. The gang is at a canyon in the desert. Jasmine opens a barrel to make lamp oil come out. While she's rolling the barrel to where the other barrels are, which are stacked, there is a trail of lamp oil. The princess then makes Genie put fire on the trail of oil.
When the fire gets under the barrels, Abis Mal and Haroud show up. Abis Mal runs to the barrels, thinking that it's his lucky day, and then the barrels explode. Sootinai sees the explosion and goes to the canyon. Genie flies to the huge smoke and turns into a dousing rod. Sootinai grabs the jinn and throws him. Genie falls to the ground and takes water out, making Sootinai dissolve. Everyone is proud of Jasmine for saving the day.
Later, Haroud goes to Abis Mal's hideout, carrying another bag. This time, there are rubber like substances in the bag. Abis Mal tests it and Sootinai appears. When Abis Mal and Haroud run out of their hideout, Sootinai turns out to be Genie.