Off the coast of Japan, the environment has been ravaged with poisonous starfish-like creatures called Barem. Meanwhile, the Elias sisters, Moll and Lora, survey the destruction and enlist the help of three children, who had just discovered and befriended a strange little creature dubbed "Ghogo" to help find the mysterious treasure of Nirai Kanai, an ancient lost civilization, to save the Earth from the declining environment.

The Elias then tell the children that the people of Nirai Kanai created a monster called Dagahra as a method of pollution management gone wrong and only Mothra Leo can stop it; however, he will need the help of the lost castle of Nirai Kanai itself and the mysterious treasure within. Belvera, the evil Elias sister, manipulates two fishermen to get the treasure for herself. They all journey to the lost castle hidden beneath the ocean waters, and it magically rises out of the water when the travelers discover it.

Dagahra, awakened after a sudden increase in pollution levels, then releases a swarm of Barem into the sea, killing many types of sea life. Moll and Lora call Mothra Leo, who nearly succeeds in defeating Dagahra, until the sea monster takes the battle underwater where it is in its element. Dagahra incapacitates Leo by covering him with Barem. Leo lands on the newly raised Nirai Kanai temple, but before Dagahra can give the killing blow, the structure activates and defends Leo. With Leo covered in Barem and powerless, Dagahra goes on a destructive rampage.

Inside the temple, Moll, Lora and the three kids attempt to find the treasure, while Belvera and the two mind-controlled fishermen try to thwart their mission. After stealing some jewels they've found, the fishermen inadvertently unlock a gateway and awaken the Princess of Nirai Kanai. The Princess tells the three Elias sisters that Earth must be protected and saved, that the children are the hope of future generations, and reveals that Ghogo is the lost treasure.

Moll and Lora then use Ghogo's energy to revive Mothra Leo and, as a result, turn the hero into Rainbow Mothra. Leo is then able to destroy the Barem covering his body. After taking a severe beating, Dagahra once again retreates into the water, where Rainbow Mothra turns into Aqua Mothra. This time Rainbow Mothra's new form allows him to overpower the sea monster. He finally finishes his battle with Dagahra by splitting into thousands of miniature Aqua Mothras; entering Dagahra's body and destroying the Barem producing there, and without the Barem, Dagahra self-destructs. Meanwhile, the temple begins to collapse. With the building crumbling over them, Moll and Lora ride onto Fairy to safety, while Belvera releases control of the fishermen, who help the children escape. The Princess raises Dagahra's body and drops it onto the temple, reducing everything into a wave of water. Aqua Mothra then returns to his single form, and then back into Rainbow Mothra; saving the world once again.