The film follows the story of a sixteen-year-old mermaid named Ariel, who is dissatisfied with life under the sea and curious about the human world. Ignoring the warnings of her father, King Triton, and the court musician, Sebastian the crab, Ariel and her best friend, a fish named Flounder, often sneak into sunken ships, where they collect human artifacts, and the surface of the ocean to visit a goofy seagull named Scuttle, whose supposed expert knowledge of human culture is far from accurate. Ariel knows that contact between merpeople and humans is forbidden, but she longs to be part of the human world.

Ariel is being observed by Ursula, an evil cecaelia sea witch, who for many years, has been seeking a way to exact her revenge upon King Triton for banishing her from the kingdom. She sees Ariel as the perfect pawn in her quest to rule the seas.

Ariel and Flounder travel to the surface to watch a celebration for the birthday of Prince Eric, with whom Ariel falls in love. The birthday celebration is cut short when a violent storm destroys the ship. Eric is lost at sea but is saved by Ariel who drags him onto a beach. She sings to him with her beautiful voice, and she disappears as he awakes. Eric's butler/servant/advisor tells him that he must have been dreaming when the prince tells him of the girl he saw, and her most beautiful voice.

Ariel's odd behavior the next day causes Triton to become suspicious, and he attempts to extract from Sebastian the name of the man (or rather, mer-man) she is in love with. Sebastian accidentally reveals Ariel's secrets. King Triton becomes furious and destroys Ariel's grotto.

Ursula makes a deal with Ariel to transform her into a human for three days. Within these three days, if she plans to remain a human, she must get from Eric the "kiss of true love;" otherwise she will transform back into a mermaid on the third day. If this happens, Ursula will own her very soul and wither her down into a polyp, to join her garden of other lost merfolk. Sebastian tries to stop her, aware of the sea witch's treachery, but Ariel ignores his warnings.

In exchange for her voice, Ariel is turned into a human by Ursula's magic. Unable to breathe underwater, Ariel is helped to the surface by Sebastian and Flounder. After a few minutes she then discovers she has legs, examines one and she wiggles her toes on one of her feet. In a matter of minutes, Eric comes along and sees Ariel sitting on a rock, wearing the ship's mast sheet. He was dazed at first by her beauty, wondering if she was the girl who he heard sing to him. His initial hopes that Ariel is the one he is looking for are dashed when he learns that she can't speak. But he does let her live in his palace with him, much to her pleasure.

While Ariel is enjoying life with Eric in the human palace, Sebastian, Flounder and Scuttle try to get Ariel and Eric to kiss and break the spell. They come so close to kissing, but Ursula's pet eels knock over the boat they are in, breaking apart the moment. Ursula also takes matters into her own hands. Taking the disguise of a beautiful young woman named Vanessa, Ursula appears onshore singing in Ariel's voice, which is housed in a magic nautilus shell around "Vanessa's" neck. Eric hears her and is distracted by it, recognizing the song that Ariel had sang to him. She casts a hypnotic spell of enchantment on Eric, who then plans to marry her immediately.

The ceremony takes place at sunset, which is when Ariel's deal with Ursula ends. Unknowingly to "Vanessa," Scuttle, a seagull, discovers that she is Ursula. He explains the situation to Ariel. Sebastian swims off to inform Triton (who needs to know about this) and Ariel and Flounder try to reach the wedding boat, while Scuttle is assigned to distract the wedding party. With the help of various sea and air animals, Scuttle manages to break the nautilus shell around Ursula's neck, restoring Ariel's voice, and breaking Ursula's enchantment over Eric. Realizing that Ariel was the girl who saved his life, Eric rushes to kiss her, but the sun sets and Ariel transforms back into a mermaid. Ursula reverts back to her true form and she kidnaps Ariel. Eric goes after them, telling his butler that he is not going to lose Ariel again.

Triton appears, and attempts to destroy the contract Ursula made with Ariel, but is unable to do so. Before Triton's eyes, Ursula's contract swirls around Ariel and she begins to wither into a polyp. Triton sacrifices himself for his daughter and is transformed into a helpless polyp.

Ursula takes Triton's crown and trident and declares herself queen. Eric dives into the sea and throws a harpoon at Ursula; it distracts her long enough for Ariel to escape. After Flotsam and Jetsam, her pet eels, are unable to drown Eric, Ursula decides to kill him herself, aiming the trident for a killing strike. Ariel distracts her, making her destroy her eels by mistake. Ursula transforms into a giant version of herself and begins to stir up a storm using the magical trident. Ursula forms a massive whirlpool that drags in wrecked ships from the bottom of the sea.

Ursula spots Ariel and blasts her off of a rock she is on, sending her into the bottom of the whirlpool. Ursula fires at her, but misses. Ursula raises the trident for a final blow, but neither one is aware that Eric has taken control of one of the ships. He rams the ship's splintered bowspirit through Ursula's heart. The trident's power then backfires and Ursula dies an explosive death by the power she craved most.

The polyps in Ursula's garden, including Triton, are all changed back into merpeople. Triton decides to give Ariel what she wants and turns Ariel into a human using his trident.She runs into Eric's arms, and the two finally kiss.

In the final scene, she and Eric are seen kissing on their wedding day. Both humans and merpeople turn out for the wedding, and Triton accepts Eric as a part of the family.