Set thirty-two years before A New Hope, The Phantom Menace opens with a massive fleet of Nimoudian Federation battleships poised to invade the peaceful world, Naboo. The Republic dispatches ambassadors in a last ditch effort to mediate the crisis, unaware that there is no way to avert war because the Nimourdian leaders have made a secret pact with the Dark Lords of the Sith. For their part of the bargain, the lanky aliens are required to capture Naboo's capital city, Theed, and kill the young queen who rules it.

After the cover of the two Republic 'ambassadors' is blown - it turns out they are actually Jedi Knights Obi-Wan Kenobi and Qui-Gon Jinn - a spectacular battle ensues and the Jedi manage to escape from the Nimoudian battle cruiser relatively unscathed. Their flight from danger leads them to a secluded swamp on the on the planet below, somewhere on the outskirts of Theed. In that mire, Obi-Wan faces mortal danger, only to be save by a huge, friendly alien called Jar Jar Binks. The two Jedi take in the lonely Jar Jar (an exile from his people, the Gungans) as a companion and set off for the Naboo capital.

Theed is deluged by invading forces by the time Qui-Gon, Obi-Wan and Jar Jar arrive, but the Jedi manage to find themselves in a position to rescue the world's beautiful young queen, Amidala. With some help from a droid named R2-D2, they escort the queen and her entourage to her sleek royal vessel, the Marie Celeste. Thanks in part to crack manoeuvring by the queen's pilot, Ric Olie, the Celeste evades enough enemy laser fire to escape to sieged stellar system intact. once in a secure location, the battered ship's course is set for a desolate world called Tatooine.

Once on Tattoine, Qui-Gon, Amidala (disguised as a commoner named Padme Nabeerie), Jar Jar and R2-D2 travel to the village of Mos Espa, where they hope to find the parts required to make their spaceship suitable for a hyperspace journey to Coruscant, the political seat of the galaxy. R2 finds a junk shop owned by a big-like alien called Watto in the village, but Qui-Gon makes a more significant discovery: Working in the shop is a dirty, disheveled young boy with an incredible affinity with the Force, Anakin Skywalker. Anakin quickly endears himself to the group, and after Qui-Gon fails to convince Watto to lower his asking price for the parts, the boy invites the beleaguered travellers back to his slave quarters for supper.

After dinner the boy shows Jar Jar and Padme his racing pod and makes some final preparations to the vehicle. Meanwhile Qui-Gon and Anakin's mother, Shmi, discuss the role the Force will play in the boy's future. Soon after, Anakin is set to enter an illegal competition, a sequence popularly known as 'the pod race.' Anakin delivers in the race, out-piloting a street punk named Sebulba and others while cruising to victory. With this triumph, the boy not only wins his freedom from slavery, but is rewarded with enough money to buy the parts required for the Celeste. In a tear-jerking follow-up scene, Anakin decides to leave his mother and his desert homeland behind to travel with Qui-Gon and learn the ways of the Force. But before the ever-expanding Jedi entourage can lift off Tattoine's sandy dunes, they are confronted by Darth Maul, one of the Sith lords.

After Qui-Gon staves off Maul's attack, the Celeste heads for Coruscant. There Amidala petitions the Galactic Senate for aid in the war against the Nimoudiansm while Qui-Gon and Obi-Wan present young Anakin to the high council of Jedi Masters. While Amidala's request reluctantly is granted, the Jedi Council, led by Yoda, decides against accepting Skywalker as an apprentice, sensing that the boy is dangerous. After that disappointment, the Jedi and the queen's entourage regroup and prepare o retake Naboo, setting the climatic final act of The Phantom Menace into motion .........