A couple of unseen filmmakers (Ash Brannon
and Chris Buck
) arrive in Shiverpool, a small fishing village inhabited by rockhopper penguins in Antarctica, to document the life of a teen surfer named Cody Maverick (Shia LaBeouf
). Cody is the only surfer in his community and is often shunned by the other penguins, including his big brother Glen (Brian Posehn
) who regularly belittles him. Cody's mother, Edna (Dana Belben
), is impartial to Cody's lifestyle but would rather see him work and is often preoccupied with her own. She acknowledges the fact that life is often hard for Cody since he's so much smaller than his brother and that he grew up without knowing his father; featured in a picture holding a fish just before being swallowed by an orca. Cody explains that his passion for surfing started when one of the most famous penguin surfers, Big Z, visited Shiverpool on a tour and gave young Cody a 'one-of-a-kind' shell necklace. Ever since then, Cody has dreamed of being as good a surfer as Z and dreams of one day leaving Shiverpool.
His wish comes true when a surfer scout sandpiper named Mikey (Mario Cantone
) arrives in Shiverpool via whale, along with other prospects he's found around the globe. Mikey finds Cody sorting fish and asks for a demonstration of his skills. Unfortunately, the waves don't cooperate that day and impatient Mikey leaves. Determined to prove himself, Cody chases after the whale and struggles 'on board' with the help of a chicken named Joe (Jon Heder
). Joe, a surfer from Sheboygan, WI and on tour as a result of a bet that Mikey lost, is extremely laid back and he and Cody become fast friends.
The whale arrives at Pengu Island where the 10th Annual Big Z Memorial Surfing Competition is being held. Cody and Joe mingle with fellow surfers, including pros Rob Machado
and Kelly Slater
, and take in the local scenery and food. A lifeguard named Lani (Zooey Deschanel
) suddenly runs past to save a young penguin named Arnold (Reed Buck
) struggling in the water and Cody is smitten. Joe convinces him to talk to her and the two become acquainted before Lani is interviewed by the filmmakers. In the background, we see Arnold fling himself into the water again to be rescued, inciting an exasperated reaction from Lani.
Cody and Joe then see the shrine to Big Z; his old surfboard propped on a rock. 10 years prior, Big Z had been participating in a surf contest on Pengu Island when he paddled into a large swell and disappeared, presumably drowned. All that remained were the broken pieces of his board. The flashback is interrupted by Tank 'The Shredder' Evans (Diedrich Bader
), the 9-time Big Z competition champion, as he throws rocks at Z's surfboard. Cody stops him and the ensuing argument attracts the attention of Reggie Belafonte (James Woods
), the promoter and personality of the competition. The sea otter proposes a one-on-one surf trial between Cody and Tank to settle the dispute and Cody is given a board.
The two penguins paddle out into the surf as we hear Cody's assurance from earlier that his first big wave will be the best ride he's ever had. However, Cody ends up wiping out as Tank successfully rides the wave. Cody is tossed in the surf before he's knocked out on a shallow rock. Lani brings him to shore and manages to revive him before he hallucinates and falls unconscious again. Squeamish Joe passes out on the beach while Lani seeks more 'professional' help. She carries Cody into the forest and walks up to a large banyan tree house where she finds 'Geek' (Jeff Bridges
) sleeping in his hammock, gargling the rain. She wakes him up and asks him to look at Cody, which he does reluctantly. Geek finds a sea urchin needle stuck in Cody's foot and removes it, causing Cody to violently wake up. However, Geek realizes that by removing the needle he's actually encouraged the poison within to seep through Cody's body. So, using a trick he learned from a medicine man, Geek takes a swig of rain water and proceeds to urinate on Cody's foot. Cody's horrified reaction leaves Lani no choice but to render him unconscious again.
Meanwhile, back on the beach, Reggie could care less about Cody's fate and is obviously more interested in his reputation within show business, despite Mikey's concerns.
Lani leaves Cody to recover under Geek's care, admitting to the filmmakers that she hates seeing Geek alone all the time and thinks some company will keep him occupied for a while. The next morning, Geek wakes him and escorts him to the path in the woods that will lead back to North Beach. When he finds out he's lost his Big Z necklace, Cody becomes upset and tells Geek that Z had given it to him personally and taught him to 'always find a way, because that's what winners do'. Geek advises that Cody should find his own way before leaving him on the trail. Despondent over his failure at the beach and unsure of what to do next, Cody sulks on a log near the path. Back home, Z finds the necklace Cody lost and resolves to return it to him. When he does, he gets Cody's thanks and pauses to notice that the log he's sitting on is Koa wood; the best kind for making surfboards. He proposes to make Cody a board since he doesn't have one. After some encouragement, Cody agrees.
Meanwhile, Chicken Joe wakes up on the beach to find kids building a sand castle over him and Cody missing. He starts searching for him, explaining to the filmmakers that he and Cody have a lot in common and Joe didn't know his father either (enter image of elder Chicken Joe on a value bucket of nuggets). Cody and Geek pull the log through the woods back towards his house but, when Cody attempts to roll it, it careens out of control down a hillside before crashing on a beach hidden within a cove. Cody opts to check it out against Geek's wishes and finds an old surf shack stocked with surfboards that he recognizes as Big Z's. When he asks Geek about it, he discovers that Geek is actually Big Z! In a flurry, Cody asks Z what happened but 'Zeke' refuses to talk about it and claims that he's still 'dead', hiding away inside his shack.
He soon comes out, however, when Cody takes one of his boards out for a test run. Z notes that Cody doesn't know how to properly surf and accurately predicts when Cody's inattentiveness leads to him being washed ashore by a wave. Cody asks Z to teach him how to surf which Z refuses to do but tells Cody that, if he wants to learn how to surf the right way, he needs to make his own board.
Meanwhile, a filmmaker interviews the local kids including Arnold, Kate (Reese Elowe
), and Smudge (Jack P. Ranjo
) about their ideas of surfing. Tank has different opinions; his entire mindset focused on winning, even if that means surfing over newbies. He shows the interviewer where he keeps his 'ladies'; the 9 trophies he's won over the years, each with its own name.
Z shows Cody how to mark a guide and properly carve away at the log, inspiring a calming and spiritual method. However, Cody's attempt to carve the board is much more focused and rushed and the result is more like a rough plank of wood. When he takes it into the water, it immediately breaks. Flustered and angry, Cody leaves the beach, claiming he doesn't have time to follow Z's methods before the contest and leaving Z bemused. Cody then bumps into Lani, on her way to deliver fresh clams to Z, his favorite. She is stunned and happy that Cody was able to get Z down to the beach, something she had been trying to do for years, and offers to take Cody somewhere fun. She leads him to her childhood sledding grounds within the island's lava tubes and Cody's spirits are lifted again. Later that night, she confesses that Z is actually her uncle and that he must see something in Cody, else he would not have offered to help him.
Feeling bad, Cody returns to the beach where he finds Z sleeping and begins work on the other half of the koa log, this time taking care to perfect Z's methods. Z watches him and, the next morning, tests the board by jumping on it; this time it doesn't break. That evening, as Cody waxes his board, Z tells him about how nothing compares in surfing to riding the tube of the wave, an addiction that professional surfers agree with. Cody's inquiry about points earned for riding the tube gets a bitter reaction in Z who doesn't look at it that way.
Reggie, meanwhile, lazes about while Mikey prepares for the surfing competition throughout the day. Joe continues his search and recounts how he met native Pengu-ins the previous night. In reality, he was captured and placed in a cooking pot, what he thought was a 'hot tub'. Despite their vigor, the Pengu-ins' bumbling nature allows Joe to calmly leave the camp and continue his quest to find Cody.
Eager to start surfing, Cody bothers Z to get up and show him but Z tells him that surfing doesn't start in the water. He puts Cody through some 'tests' to determine balance and patience, though most of them are actually pranks. Finally, after a little payback on Cody's part, they head out into the surf and catch their first waves. Lani arrives at the beach and is surprised to see Z in the water again. She joins them and they surf until the sun sets. They camp together on the beach, sharing shrimp and a few musical selections from Z's ukelele. Cody then asks Z if he'll come watch Cody at the surf contest the next day. When Z refuses, Cody demands to know why Z never came back from that 'one wave'.
Z then explains that, at the height of his prime, winning surfing competitions had become everything to him. However, his older methods of surfing could not compare with the talents of up-and-coming Tank Evans. Not wanting to return to shore as a loser or has-been to his fans, Z faked his death, throwing his surfboard into a wave and leading everyone to believe he'd been crushed in the boneyards; a series of sharp rocks and crags jutting out of the water at one end of the beach. Z claims that he's going to stay dead and becomes upset when Cody persists, finally retreating to his shack. Lani tries to console him and Cody angrily leaves to head back to North Beach with his board, throwing his shell necklace in the sea.
The next morning, Cody is reunited with Joe who had befriended the local Pengu-ins by inticing them with squid-on-a-stick, a food item that tasted closely to their other favorite; chicken. Cody and Joe make it to the beach just before the contest begins. Sal Masekela
gives all the announcements and updates for SPEN, the network for Penguin surfing as competitors are eliminated one by one until only Joe, Tank, and Cody remain. Cody proves himself to be a force to be reckoned with and we see Z watching from his hiding spot just beyond the beach. On their final wave, Cody sets himself up for a tube ride before he notices Tank about to take out Joe. He rides ahead instead and pushes Tank away so that Joe can finish his ride. However, this move lands both Cody and Tank navigating the boneyards. Tank knocks Cody off his board before colliding with a piece of jagged rock. Lani rescues Tank but cannot find Cody who we eventually see clinging onto the rocks.
Z appears above him, holding onto the rock where his shrine is located, and instructs Cody to slide back into an approaching wave so that the currents toss him right into Z's arms. The plan works, though the force of the wave knocks them off the rock. They resurface and use Z's old board to paddle back in where Reggie is attempting to auction off Cody's recovered board. Z reveals himself to everyone and explains that he 'got a little lost' but that Cody helped him find his way back. Lani embraces Cody and they all celebrate as the winner of the contest is announced; Joe. Z then invites everyone to go with him to his beach in the cove for some fun surfing, leaving a frustrated Reggie to fume. Cody speaks to the filmmakers for the last time, admitting that he's tired of talking about himself, before joining Z in the surf.
The filmmakers return to Shiverpool where they tell Edna and Glen about Cody's adventures, despite the fact that he's not returning home with a trophie. Glen can't help but laugh but, when his mother tells him he should be more like Cody, he deadpans and abruptly ends the interview.