The film begins with Pippi (Melissa Altro) sailing around the world with her father, Captain Efraim Longstocking (Gordon Pinsent), her pet horse, Old Man, her pet monkey, Mr. Nilsson, and various members of the ship's crew. One night during a hurricane, the captain is washed over board into the sea. As he drifts off, he calls to Pippi that he will "meet her in Villa Villekulla". To that effect, Pippi and her pet animals make their way home, Villa Villekulla, to await his return. Not long after arriving, she makes friends with the two children across the street — Tommy and Annika (Noah Reid and Olivia Garratt), who are captivated by her free spirit and fun-loving attitude. They soon convince her to go to school (for the first time in her life) where she gets into trouble, despite winning the hearts of her classmates.

Pippi also soon attracts the attention of a local social worker, Mrs. Prysselius (Catherine O'Hara)), who conspires to put her into foster care. When Miss Prysselius goes to speak with the local law enforcement of the need for the girl to be placed in a home for orphans, she lets certain details (her lack of adult supervision, living alone, and having a large supply of gold coins kept out in the open) be revealed to a pair of thieves already in jail. The thieves, Bloom and Thunder-Karlsson, decide to rob Pippi themselves once they break out of jail.

Pippi and her friends take part in many adventures and close-calls, winning over almost everyone, with the exception of Miss Prysselius and Tommy and Annika's parents. Just when Miss Prysselius has had enough and is about to drag Pippi straight to the children's home herself, Pippi's father returns to take her back to their life on the sea. However, Pippi decides that she can't leave her new friends and decides to stay in Villa Villekulla.