It's 1974, and a man by the name of Marty Bronson (Jonathan Pryce) is narrating a story. The story is about himself as the owner of a quaint hotel that is also run by himself and his 2 children. The daughter (Abigail Droeger), at 12 years old is very serious minded and runs the front desk efficiently. And the son (Thomas Hoffman), at 10 years old, has a wondrous imagination that will take him anywhere, but is absolutely, totally, completely, utterly, & entirely useless to the hotel. Little do the children know, though, that the motel is in debt, and Marty is forced to sell to an English chap by the name of Barry Nottingham (Richard Griffiths). However, Marty will only sell to Barry under the agreement that his son run the place when he is of age.
Fast forward and we see the quaint hotel quadrupled in size and is no longer a family establishment but more for the rich and famous, and Marty's son Skeeter Bronson (Adam Sandler) is the hotel handyman. When Nottingham announces plans to build a new hotel he appoints another man named Kendall (Guy Pearce) to become the manager.
After work, Skeeter visits his sister for it is his niece's birthday (who he hasn't seen in 4 years). There his sister Wendy (Courteney Cox) informs him that the school that the children Patrick (Jonathan Morgan Heit) and Bobbi (Laura Ann Kesling) attend, which she herself is the principal at, is being closed down and that has to relocate to Arizona for a job and asks Skeeter if he could watch her kids while she goes for an interview. Even though Skeeter doesn't know his niece and nephew very well, he agrees.
After the day shift babysitter Jill (Keri Russell) leaves, he settles them into bed and they ask him to read a story. After looking at the lame books that the children have, he refuses to read them and instead makes up his own story. Modeled around his own life, he tells the story of a medieval squire named "Sir Fixalot" and his rival "Sir Buttkiss". Throughout the story the kids make their own additions, such as the king giving Sir Fixalot a chance to prove himself. During the celebration, Patrick announces that "it starts raining gumballs" and the story ends.
The following day, Skeeter is called to fix Nottingham's television and during the visit, Nottingham tells Skeeter the "secret" theme that he had announced for the hotel - a rock and roll theme much like that of the Hard Rock Hotel. When Skeeter points out this has been done before he is offered the opportunity to compete with Kendall "to prove himself" for a better theme. While driving to his sister's house, Skeeter is suddenly greeted with a shower of gumballs raining down from above (which he does not see is caused by a crashed delivery truck). Skeeter concludes that the story has come true and quickly develops a plan to use it to his advantage.
For the next story, he elaborates a Western theme in which he receives a free "Ferrari" horse from a Native American chief. The children do not corroborate the story, but have him save a damsel in distress from several criminals. They claim he should be rewarded with a kiss, but an angry dwarf kicks him instead. That night, Skeeter goes out in search of his Ferrari and meets a Native American man who steals his wallet. Later, Violet who is being hounded by paparazzi, is rescued by the passing Skeeter. Just as he is about to kiss her, he is kicked by an angry dwarf from a nearby fraternity.
From this point, he determines that it is only the changes made by the children that actually affect reality. The following night, Skeeter tries to sell the kids on the theme ideas contest, but they are more interested in romance and action in their stories. The next story begins with Skeetacus, a Greek gladiator who, after impressing the emperor and a stadium of onlookers, attracts the attention of the "fairest maiden". He and the maiden walk into a restaurant where all the girls who were mean to him growing up are sitting at a table, they are to be so impressed by the maiden he is with, they start to nervously sing the "Hokey Pokey". After a meal they go for a walk on the beach where a large hairy man who is having trouble breathing is washed up on the shore, and after Skeetacus saves this man's life, a rainstorm sends him and the maiden into a magical cave which has Abraham Lincoln in it. Skeeter loses his patience with the story and upsets the children. Unable to get them to continue, the story ends.
The next day, Skeeter learns that Violet will not be meeting with him as he thought, but unexpectedly runs into Jill, who invites him to lunch. The girls from Skeeter's high school are at the restaurant, so Skeeter asks Jill to pretend to be his girlfriend. After the girls break into the "Hokey Pokey" and Skeeter casually saves the life of a man on the beach, a sudden rainstorm sends them under the dock and he realizes that he is falling in love with her. But the kiss he is about to receive is interrupted as he is reminded about the Abraham Lincoln part of the story as someone walks on the dock above them, and thinking that the real "Abe" is going to appear he ducks. Instead a penny falls through the dock.
For Skeeter and the kids' final night together, a space-themed story begins with Skeeter's character who battles Kendall's character in anti-gravity. Skeeter's hard-to-understand character wins and Skeeter quickly ends the story. Patrick interjects that the story is too predictable and says that Skeeter is then 'incinertated' before ending the story.
At Nottingham's birthday party, among the fiery hazards that Skeeter is trying to avoid, his tongue is stung by a bee, making him hard to understand when competing with Kendall's new Broadway-themed hotel. Nottingham enjoys Skeeter's approach over the showy approach that Kendall had provided. A panic attack on a fiery birthday cake causes Skeeter to be "fired" by Nottingham. Afterward Jill, Patrick, and Bobbi are all upset as they learned where, which Skeeter had just discovered, the hotel was going to be built: on the property of the school which they all work and attend. Wendy believes he did not know, but is upset because he had inadvertently taught the children there are no such things as happy endings. When they attend the demolition to protest, Skeeter is inspired to prevent the school from being demolished. After finding Nottingham an alternative location, Skeeter takes Jill on a wild motorcycle ride which ends at the school and manages to stop the countdown. Sometime later, he marries Jill and founds a hotel named after his late father. Kendall and his scheming partner Aspen (Lucy Lawless) are demoted to Skeeter's hotel waiting staff.