Amid a sea of gently-waving tall grass, lies the factory of Zevo Toys, founded by Kenneth Zevo as a place where 'joy and innocence prevail.' Kenneth works in his whimsical factory, along with his children Leslie, and Alsatia.
In recent months, Kennth has grown deathly ill, and sends for his Militaristic brother, General Leland Zevo. Upon meeting his brother, Kenneth explains that he wants Leland to take control of Zevo Toys once he dies. This strikes Leland as a very strange request, since he is not at all like his brother, and is more concerned with the 'rank and file' of his former glory days.
Eventually, Kenneth dies, and Leland is still not sure what to do. He goes to consult with their father, a bed-ridden, retired 4-star general. But even this doesn't lead to any answers. Leland finally decides to fulfill his brother's request, but even with Leslie and Alsatia welcoming him to the factory and trying to get him acclimated, Leland seems largely like a 'fish out of water,' not seeing the humor or fun in the factory's workings.
During a board meeting, word of industrial espionage rouses his attention. Consulting with Kenneth's former advisor, Owen Owens, Leland decides to implement some changes.
At a formal dinner at Leslie and Alsatia's home, they are introduced to Leland's son, Patrick, a master of camouflage. Leland takes the opportunity to explain to everyone about his upcoming plans. Patrick is being implemented to step-up security measures to prevent future information leaks, and Leland also plans to start a new line of 'war toys,' a concept that has never been introduced in the factory.
Some months pass, and a major security detail is now in place, with the once happy workers now rather dour. Leland has grown upset that the design teams are not fulfilling his vision for a war toys line, and berates them, much to Leslie's displeasure. While passing by the copy room, Leslie meets Gwen Tyler (Robin Wright), who he soon strikes up a conversation with, and finds her to have a rather intriguing personality. Leslie also finds out that Gwen was hired by his father right before he died.
Later that evening, Leland and Patrick go into town, where they peruse a video arcade, watching children play intently at the flickering game consoles. Going to a local toy store, Leland is amazed at what other companies have produced in regards to war toys. As they drive back to the country, Leland and Patrick stop at a small pond, and contemplate. Leland soon hits on an epiphany: what if military aircraft and hardware could be made smaller? After all, the reason they are so large is because they need a human being inside to man them. What if the human person operated the craft by remote control? Plus, this could allow Military spending to become less cumbersome!
The next day, Leslie meets with Leland, to discuss his feelings about the 'war toys' line. Leslie contends that Zevo Toys has always been moreso about children, and war toys would bring a change to his father's philosophy. Leland 'plays along' with this, and claims he agrees, but asks Leslie if he could have some space to work on some of his own ideas for potential toys. Leslie agrees to this, but then notices some rather startling changes going on around the factory.
Leland keeps asking for more space, which begins to 'shrink' other departments in the factory. Alsatia's department is also shut down, and a number of workers are fired. Owen Owens tells Leslie about children being brought into the factory, but has no idea where they are going to. Leslie confronts Leland about what he's doing, but the General is tight-lipped and refuses to say more.
Leslie ends up obtaining a security key to the General's secret project, and after staging an elaborate plan to distract the guards, gains access to the secret room. Inside, he finds numerous children at videogame consoles, playing simulations of fighter craft in war-like scenarios. Leslie's presence is soon found out, and he attempts to escape, but falls into a pit, in which a strange creature named the 'sea-swine' inhabits. Patrick and the General find Leslie in the tank, and the two are at odds with the other: Patrick wants to save Leslie, but the General refuses.
Leslie manages to secretly make his way out of the sea-swine enclosure, and reports to his family and friends what he's seen. Leslie then has a confrontation with the General about what he's seen, but the General refuses to tell more, other than requesting two weeks to finish his project, at which time he promises to show them what he's doing.
After the meeting, Patrick informs the General that some men from Washington D.C. are coming to meet with him. The General is ecstatic, and a top-secret location is set-up a ways outside the factory, with tight security. The General states his vision for the future, but the men at the meeting are still unsure about his plan. Their negative attitude towards his ideas infuriates the General, causing him to strangle one of the men. The General appears to have gone power-mad, as later on that evening, while sitting in his office, he attempts to take care of an errant fly by shooting it with a pistol...and succeeds in shooting himself in the foot.
By now, Patrick has grown upset with his father's 'conduct,' and goes to Leslie's place, where he explains to Leslie, Alsatia, Gwen, and Owen about what the General has been up to, and that they have to stop him. Sneaking into the factory, Patrick and the others split up, trying to find the main control center where the General is.
The General uses this to his advantage, letting loose some cute-yet-deadly toys, before setting his military-style 'Tommy Tanks' and 'Hurly-Burly Helicopters' on them. Leslie, Alsatia, Gwen and Owen end up finding their way into a storage warehouse, where the General had the older Zevo Toys stored. Devising a plan, Leslie has the old toys wound up, and put to battle against the General's creations. As the battle rages on, Leslie runs off to find Patrick. He winds up in a room outside the General's offices that resembles a miniature of New York City, where Patrick explains that he's been wounded, and that Leslie has to get to the General's room and shut off the controls.
Getting into a small plane over the New York model, Leslie tries to pilot it into the General's office, where he confronts the General, and manages to shut off the controls.
As the machines shut down, Alsatia, Gwen and Owen join Leslie. However, the sea-swine has also been activated, and tries to kill Leslie, but misses, and hits Alsatia, causing her head to fly off. It is then revealed that she is a robot, that was created as a playmate for Leslie by his father. In the confusion, the General attempts to escape, but is attacked by the sea-swine.
Time passes, and Leslie has now assumed control of Zevo Toys, returning it to it's more innocent state. The General has now become bed-ridden, and now shares quarters with his father as well.
The film ends with Leslie, Alsatia, Gwen, and Patrick visiting Kenneth's Zevo's grave. Patrick then says his goodbyes, and wanders off into the sea of waving tall-grass.