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The movie begins in the near future at an orphanage. A troublesome boy plans on running away but is stopped by Father Clifford Daniels (Short). Father Clifford then tries to convince the boy to change his ways by telling him of his own youth. Flashing back to the present day, the 10 year-old Clifford Daniels (also played by Short), is a deceptive, evil, weird-looking boy whose dream is to visit Dinosaur World, a theme park located in Los Angeles, California. While flying with his parents, Theodora (Jennifer Savidge) and Julien (Richard Kind) on one of his father's business trips to Hawaii, Clifford purposely causes a catastrophe on board, forcing the plane to make an emergency landing in California. From the airport, Julien phones his brother Martin (Grodin), who coincidentally resides in Los Angeles, and proposes the idea of Clifford staying with Martin for the extent of the business trip. Martin complies, realizing that this would be the perfect opportunity to prove to his fiancée Sarah Davis (Steenburgen) how great he interacts with children, especially the nephew he hasn't seen in years. Little does Martin know that a conniving monster hides behind Clifford's innocent smile.

Upon their reunion, "Uncle" Martin reveals to Clifford that he designed Larry the Scary Rex (a Dinosaur World attraction), and is able to get in to Dinosaur World free of charge. This, of course, only strengthens Clifford's desire to visit the theme park. Martin promises to take him there, but is ultimately forced to back out because he must finish designing new plans for the transportation system of Los Angeles. This enrages Clifford, thus beginning his path of destruction. Clifford turns Martin's life upside-down, causing his uncle's relationship with Sarah and job to be put in jeopardy, among other things. Finally, Martin breaks and loses touch with sanity, promising to finally take Clifford to Dinosaur World. However, Martin's plan is revealed that he will make Clifford take the Larry the Scary Rex ride until he can no longer take it. After going through it once, Clifford seems to enjoy himself, so Martin ups the speed of the ride. After the second time, Clifford plays it off slightly, only to have Martin change the speed again. This time, the ride malfunctions due to going too fast and Clifford's cart crashes, leaving him dangling above the jaws of a robotic dinosaur.

Martin enters the employee entrance to see Clifford holding on for dear life. Clifford cries out for Martin to save him; however, Martin hesitates because he worries about what could happen in the future if he saves Clifford's life. Finally, Martin relents and risks his own life to save Clifford, and the two escape right before everything collapses. Clifford apologizes for his actions; however, Martin, at this point, is fed up with believing Clifford, and leaves disappointed. We then momentarily return to the present when the grown up Clifford says this was what made him turn his life around. He then says that later on Martin gave him "the bestest best gift in the whole wide world": he "invited" him to his wedding to Sarah which made him think he had forgiven him (though in the flashback, it is hinted that this was done at Sarah's insistence and that Martin still harbored a great deal of resentment). The boy then decides to not run away and leaves. Father Clifford then takes his toy dinosaur (which the younger Clifford kept talking to during the film) saying "Mission Accomplished, old friend.

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