In a prologue, the Old Man of Wandering Mountain reads from a large book, begins to record a prophecy of a day when "The Nasty" will arrive in Fantasia, and describes the savior of "Extraordinary Courage". Bastian Balthazar Bux has grown older, and his father Barney has married a woman named Jane, and moved into her house in a new neighborhood. Jane's daughter Nicole is displeased at having a new family. Bastian has also started high school, where he has become a victim of the Nasties, a quintet of bullies led by Slip. Bastian arranges for them to be expelled with the help of the janitor after the Nasties trap him in the boiler room. He later flees to the library, where he is surprised to find Carl Conrad Coreander and the Neverending Story. The Nasties locate him, but he uses the book to escape to Fantasia, where he is reunited with Falkor, Engywook and Urgl. On Earth, the Nasties find the Neverending Story and use it to bombard Fantasia with fireballs and a storm. With wooden Bark Troll, Bastian and his friends head for the Wandering Mountains to speak with the Childlike Empress, who asks Bastian to find the Neverending Story using the Auryn. Falkor, Barky, the gnomes, and Rockbiter's son, Junior, help him, but a "wish overload" scatters them all across Earth, where Barky ends up in a conifer forest, Falkor saves Junior from falling to his death near Mount Rushmore, and the gnomes arrive in Nome, Alaska. Bastian locates Falkor and Junior, and Falkor flies off to find the others while Junior stays at Bastian's house. Rockbiter sadly informs his wife that Junior is gone, and the Nasties provoke them to quarrel. Nicole takes the Auryn from Bastian's room, discovers its wishing abilities, and takes it on a shopping trip to the local mall. Bark Troll arrives at Bastian's house disguised as a garden plant, while the Gnomes are mailed to him in a box. The reunited group go in search of Nicole, but the Nasties find the Auryn first, whereupon giant crustacean creatures appear in Fantasia to kill the Empress and her advisors. Everyone in the mall turns evil, including Mr. Coreander and Bastian's parents. Bastian is struck by lightning, and begins to succumb to the wills of the Nasties, but Nicole saves him, and Bastian recovers the Auryn and the book in a fight. The Fantasians return to Fantasia, which is restored to its former magnificence. Bastian and Nicole manage to keep their parents from divorcing, and Junior is reunited with his parents. Nicole and Bastian return to school the next day and find that Bastian has changed Slip and the Nasties into friendly classmates, and Bastian returns the Neverending Story to Mr. Coreander.
Variety stated: "The NeverEnding Story lives up to its title in the worst way possible with this third outing, a charmless, desperate reworking of the franchise that might just as well be subtitled 'Bastian Goes to High School'".
Box office
By late December 1994, the film grossed $5 million in Germany.
