Randall returns home to Kingston Falls where he gives the "mogwai" to Billy as a pet. Billy works in the local bank, where he fears his dog Barney will be put down by the elderly miser Mrs. Deagle. Randall names the "mogwai" "Gizmo" and Billy makes sure to treat him well. When Billy's friend Pete accidentally spills water over Gizmo, five more "mogwai" spawn from his back, a more troublemaking sort led by their aggressive ringleader, Stripe. Billy shows one of the "mogwai" to his former science teacher, Mr. Hanson, spawning another "mogwai", on whom Hanson experiments. Back at home, Stripe's gang tricks Billy into feeding them after midnight by severing the power cord to his bedside clock. They form cocoons, as does Hanson's "mogwai". Shortly after, the cocoons hatch and they emerge as mischievous, reptilian monsters referred to as 'gremlins', who then torture Gizmo and attack Billy's mother, while Hanson is killed by his gremlin.