Top defense contractor GloboTech Industries acquires the Heartland Toy Company and as part of the move, Globotech CEO Gil Mars (Denis Leary) tells Heartland toy designers Larry Benson (Jay Mohr) and Irwin Wayfair (David Cross) to develop actual live-action toys capable of "playing back". Mars selects Larry's action figures, the Commando Elite, for the project and Irwin's educational toys, the Gorgonites, for their enemies, with the toyline expected to hit the market in three months. Faced with such a tight deadline, Benson forgoes safety testing, then uses Irwin's password and chooses GloboTech's overly powerful X1000 microprocessor to control the toys.
Teenager Alan Abernathy (Gregory Smith) signs off for a shipment of the toys at his family's toy store without his father's consent. He and delivery driver Joe activate the leaders for each group - Archer (Frank Langella) for the Gorgonites and Chip Hazard (Tommy Lee Jones) for the Commando Elite. Alan's neighbor and love interest, Christy Fimple (Kirsten Dunst), buys Chip as a birthday present for her brother Timmy. Alan returns home to discover Archer in his backpack; he realizes Archer is sentient, but in the meantime, the Commando Elite awaken and apparently destroy the Gorgonites in the toy store. Alan calls the company and files a complaint. Later, when Larry and Irwin listen to Alan's voice mail, Irwin is terrified to discover the X1000 was designed for smart munitions guidance; a Globotech engineer reveals the AI circuit is designed to learn over time, but mass production was scrapped due to issues with EMP shielding.
Meanwhile, Chip and his squad pursue Alan to his home and attempt to kill him and Archer; unlike the Gorgonites, the Commando Elite do not understand they are just toys. Alan is attacked by Nick Nitro (Clint Walker), whom he mortally wounds. The next day, Alan and Archer find the rest of the Gorgonites in a dumpster at the shop. At home, Alan learns the primary goal of the Gorgonites is to seek their homeland Gorgon, which they mistakenly believe to be in Yosemite. The Commandos learn of Alan's interest in Christy and decide to take her hostage, immobilizing the Fimple household to force Alan into surrendering the Gorgonites.
Alan and Archer sneak into the Fimple house to save Christy, but runs into her Gwendy dolls, whom Chip has engineered as auxiliary troops. Archer cuts Christy loose from her bonds and together they destroy the Gwendys before escaping with the Commando Elite's kit-bashed vehicles in hot pursuit, but they are all destroyed during the chase. The two return to his house, only to find her family and his parents waiting for them. Phil (Phil Hartman) refuses to listen to Alan and Christy about what happened. Irwin and Larry arrive and talk to Alan over his voicemail. At that moment, Chip - who survived the chase - attacks the house with a new force of Commando Elites, having hijacked Joe's shipment and equipped with more improvised vehicles and weapons, and a battle breaks out between the Commandos and the humans inside, cutting off the house's electricity supply.
Having been guided by Irwin's advice to create an EMP blast, Alan heads out to force an overload of the power lines; Christy, Irwin and Larry head to the Fimples' house to turn on all electronic items inside and wedge the power transformers open for a larger surge. The normally peaceful Gorgonites exit the house and fight back against the Commando Elite. Chip flies to the top of the powerline pole to stop Alan, where he briefly battles and defeats Archer, but finds himself thrust by Alan into the powerline, triggering the EMP blast which kills Chip along with all of the remaining Commando Elite.
Mars arrives in his helicopter during the police and fire department cleanup the next day. He pays Joe, the Fimples, and the Abernathys for damages as well as buying their silence from the media, and orders Larry and Irwin to prepare the Commando Elite for sale to rebels in South America. Amongst the craziness of the aftermath, Alan and Christy part on highly amicable terms, and Alan later discovers that the Gorgonites have screened themselves from the EMP blast by hiding underneath the Fimples' large satellite dish. Alan brings the Gorgonites to Yosemite National Park, where he sends them out in a large toy boat from his father's store to find their island home of Gorgon.
Who designed the Commando Elite action figures?
Larry Benson