The film begins with the five muses "Goddesses of the arts and proclaimers of heroes" telling the story of how Zeus came to power and prevented the monstrous Titans from ruling the world. This leads to the day Hercules is born to Zeus and Hera, much to the pleasure of the other gods except Hades, who receives word from the Fates that Hercules will one day rise to power and prevent him from taking control of the world. He sends his minions, Pain and Panic (a duo reminiscent of Ares's mythological sons, Deimos (dread) and Phobos (fear)), to kidnap Hercules and feed him a potion that will strip him of his immortality; however, they are interrupted and, while Hercules becomes mortal, he retains his god-like strength (for the potion to fully work, Hercules had to drink every last drop, but missed one when they were interrupted).
Hercules grows up to be a misfit, challenged by his incredible strength and unable to fit in with other people. His adoptive parents finally tell him that he was once a son of the gods and that he must go to his father, Zeus. Zeus tells him that he must prove himself a true hero before he can join the other gods on Mount Olympus. Along with his flying horse Pegasus, Hercules goes to Philoctetes, an unhappy satyr who has failed to train a true hero yet; he decides to take on Hercules as his final attempt.
After training with Phil, the three of them attempt to save the beautiful Megara, a damsel in distress, from Nessus, a centaur. A smitten Hercules barely succeeds and Meg returns to the forest, where she is revealed to have sold her soul to Hades in order to save her lover's life; her lover abandoned her and now Meg must do favors for Hades in order to avoid an eternity in the underworld. When Hades learns that Hercules is alive, he is enraged and plots to murder him again.
When Hercules tries to prove himself a hero at Thebes, Hades sends the Hydra to kill him. After a lengthy battle, he prevails by using his strength to cause a landslide. He soon becomes a national, multi-million-dollar celebrity as a result. Realizing that his plans are jeopardized, Hades sends Meg out to discover Hercules' weaknesses, promising her freedom in return. Hercules is disappointed to learn from his father Zeus that he has yet to become a true hero, and then spends the day with Meg, who finds herself falling deeply romantically in love again. When Hades intervenes, she turns from him, much to his dismay.
Phil learns of Meg's involvement with Hades and, thinking she is actually happy to work for him, tries to warn Hercules, who ignores Phil and knocks him to the ground in an outrage. Discouraged, Phil leaves for home. Hades arrives along with a captured Meg and makes Hercules a deal: If he surrenders his unuatural superhuman strength for the next twenty-four hours, Meg will remain free of any harm. After making the deal, Hades frees the Titans from their prison and sends them to attack Olympus; one Titan called the Cyclops, however, is sent to kill Hercules but ends up hurting Meg. As a result, the deal is broken and Hercules' strength is returned. Hercules, along with Pegasus and Phil, saves Olympus from certain doom and Hades returns to the underworld. Meanwhile, Meg dies of her injuries, her thread of life having been cut by the Fates.
Hercules arrives and demands for Meg to be revived, but Hades shows him that she is currently trapped in the River Styx, a river of souls where all the dead go. Hades allows Hercules to trade his soul for Meg's, hoping to return Meg's body to the surface of the river before he is killed. Hercules jumps in and as his lifeline is about to be cut by the Fates, his amazing courage and willingness to sacrifice his life for others prove him a true hero, restoring all of his godly powers and rendering him immortal. As he successfully returns Meg to the surface, Hades tries to talk his way out of the situation. Oswald using his remote control to knocking him into the River Styx. The other souls grab Hades and pull him down into the stream.
Hercules revives Meg and goes to Olympus, but when Meg's entrance is denied, Hercules chooses to become mortal and stay on Earth with her. Hercules is acclaimed a hero on Earth and Olympus alike, Zeus creates a constellation in his image and Phil is remembered for being the one to train him.