Ash, Misty, Brock, and their new friend Todd, are having a picnic when Misty asks Ash when he's going to earn another badge. She tells him that he hasn't gotten one for a while, and most of the ones he already has didn't take much to earn. To prove that he has the skills to beat a gym leader, he challenges Misty to a match. Todd suggests that he take the Pokémon League admissions exam instead. They go to the structure where it is taking place and one of the staff members tells them that the exam is for people who don't have enough time to go around collecting badges. They are rated on a combined written and practical skills exam, and if they pass, they get a badge qualifying them to go directly to the Pokémon League. He hands Ash a badge with a seven on it, telling him that it is his testing number. Ash is excited, as seven is a lucky number.
Nearby, a very familiar girl with red hair fumes over the fact that she wanted number seven. Ash notices him looking at her, and she quickly goes back to the application she was filling out. Ash mumbles to himself that she looks familiar, and Misty raves about how many people. Brock notices a Joy standing among the crowd, and immediately approaches her. Ash and Misty start to follow, but the staff member tells Ash to give him his Pokémon, as trainers should be able to work with any kind of Pokémon. They go over to Joy, and Ash asks her if she wants to become a Pokémon master. Joy says that that's been her dream, and tells them that she's from Fuchsia City. She tells them that she's taking the exam because she's too busy to travel to earn eight badges. Brock eagerly tells her that he's sure she'll do great.
Ash notices another familiar blue-haired person walk into the building. He notices Ash looking at him and hurries off. He approaches the desk and hands the man his application form. The red-haired girl overhears the man read his name off as James, and immediately recognizes. Unfortunately for James, he doesn't recognize Jessie and calls her an old bat. Enraged, she drags him outside to yell at him. They ask each other why they're there, and James says that he dreams of being a Pokémon Master. Jessie says that the reason she's there is to make an addition to her résumé. Suddenly, Meowth appears, accusing them of running away from him. They try to make something up as a picnic, but he doesn't believe them and scratches their faces. James throws out a yarn ball, and Meowth, being a feline, chases after it while Jessie and James run off. Soon afterwards, the first part of the exam begins.
The exam is to test the participants' general knowledge of Pokémon by asking them true or false questions such as if Hitmonlee is known as the "Punching Demon." James struggles with a few of the questions, and notices that Jessie is whizzing right through them all. He wonders how she knows all the answers, but Jessie is actually giving all true answers, thinking to herself that she'll get half of them right. The next exam tests participants' ability to recognize Pokémon by seeing their silhouettes or parts of their bodies. The questions are extremely difficult, and Ash, Jessie, and James keep getting wrong answers. Jessie gets fed up, and stomps out of the room, resulting in her disqualification. She wakes Meowth up, and tells him that they are going to get her revenge.
After the tests, Ash and his friends look at the standings. Nurse Joy is near the top, and Ash is almost a the bottom next to James. Ash gets really upset, but consoles himself in the fact that the Pokémon battles are coming up, and that's what Pokémon is all about. Nearby, James stands in a corner, telling himself that he'll have to do his best for Jessie. Soon, the third and final exam begins. This is the battling round, and it tests a trainer's ability to adapt to battle, no matter what Pokémon he or she has. Joy does quite well, and Brock cheers her on. Ash and James each pick a belt of three mystery Pokémon that they're going to have to battle with, and James goes into the ring. James sends out the first Pokémon, which turns out to be a Pikachu. He is quite surprised, as is everyone else who knows him. He feels confident in himself, as he's been destroyed by Pikachu's attacks so many times he knows them all. The examiner sends Graveler, and James commands Pikachu to use Thunderbolt. It has no effect, needless to say, and Pikachu is hurled back by a tackle attack. Annoyed, James sends out both his other Pokémon at the same time, which happen to be Charizard and Ivysaur, but is disqualified as two against one is against the rules. He is heartbroken, but Jessie and Meowth tell him that they have a plan.
Now it is Ash's turn. The examiner sends out a Flareon, and Ash's first Pokémon turns out to be a Weezing. Ash is annoyed, but he has no choice and starts the battle. Weezing dodges several Flamethrower attacks from Flareon and lets loose a Smog attack. The flames ignite the gas, throwing Flareon back. Flareon starts in on a Leer attack, but Weezing fills the area with smoke from Smoke Screen. Since Flareon can’t see, Weezing is able to defeat him with a Tackle attack. The examiner is impressed, and sends out Jolteon. Ash withdraws Weezing, and sends his next Pokémon, an Arbok. Ash thinks about what attacks Arbok has while Jolteon uses Agility. Arbok paralyzes him with a Glare attack, and moves in for a Wrap. Jolteon's sharp spikes poke him, and he jumps back in pain. Jolteon lets loose a Thunder attack, and Arbok is defeated. Ash withdraws Arbok and sends out his final Pokémon, a Meowth. Meowth in the stands starts to cheer, and yells out to Ash to use Fury Swipes on the examiner's newly sent out Vaporeon. Meowth lunges, but Vaporeon freezes him with an Ice Beam and he falls to the ground. The battle is over and Ash has lost.
Meowth runs up to Ash and scratches his face for letting another Meowth get hurt. He frees the other Meowth from the ice, and the challenger throws a Pokéball at him since he can talk. The ball is deflected by James' Charizard, Pikachu, and Ivysaur, and Jessie and James fling off their costumes. They prepare to attack the examiner with the Pokémon, but he commands them to do an about-face, and they attack Team Rocket. Ash attacks them with Weezing, Arbok, and Meowth, then blasts them off with an explosion from Weezing.
Later, the crowd is told that, since Team Rocket interfered with the examination, they must start all over again. The examiner asks Ash if he's going to try the test again, but he declines, preferring to stick with earning the badges. Misty congratulates him, and they leave. As they leave, Todd approaches the examiner and Joy with Meowth of Team Rocket. The examiner eagerly picks him up, but he wiggles out of his hands. Meanwhile, Jessie and James fume over how they lost. They ask the Meowth sitting in front of them if he has anything to add, but he is a different Meowth. Jessie and James just look at each other.