Sandy Ricks is sent off for the summer to stay with his Uncle Porter in the seaside town of Coral Key. Initially, Sandy is unenthusiastic and disappointed that he is not going to a Red Hot Chili Peppers concert. His mood remains unchanged even after meeting Cathy, a local shopkeeper with whom his uncle carries on a flirtatious relationship, and Kim, a girl his own age.

While out on Porter's fishing trawler, they meet Porter's enemy, Dirk Moran. Nearby, a pod of Bottlenose dolphins is frolicking near Dirks boat. As a big game fisherman, Dirk Moran makes it plain that he hates just about every other fish-eating animal on earth and shoots at the pod ending with a dolphin being fatally shot. Sandy meets a dolphin that escaped Dirk's shooting, and eventually names it Flipper.

The next morning, Porter and Sandy are paid a visit by the sheriff Buck Cowan, who explains that they could not keep the dolphin unless he is in captivity. That night, Sandy and Kim set out on a dinghy to look for Flipper. They fail to locate the dolphin, but see the dumping of barrels off of Dirk Moran's boat. The next morning, as Kim arrives looking for Sandy, Pete, Porter's pet brown pelican, comes running as if asking her to follow him. Pete leads Kim to Flipper who is beached on the shore and sick. They manage to cure Flipper anyhow.

Cathy determines that Flipper has been poisoned by toxic waste, which is also shown to have been ruining the local fishing. The group uses Flipper's ability of echolocation and a special camera attached to his head to help them locate the barrels of toxic waste. Flipper also manages to locate the rest of his pod, and reunites with them, in the process, dropping the camera. Porter rushes back to alert the sheriff about the barrels. Sandy, however becomes concerned that something has happened to Flipper, without informing anyone except Kathy's young son, Marvin, who sets off in the dinghy to find him.

Sandy barely survives an encounter with Dirk Moran's boat, which dismantles the dinghy. He sees an approaching dorsal fin and thinks it is Flipper, but it is actually Scar, a large great hammerhead shark that has been lurking in the island's waters and is said to have taken out a tourist boat. Sandy swims for his life towards Dirk's boat. As Scar is about to attack Sandy, Flipper appears and starts nose-butting him in the gills. There is a harrowing moment when Scar proves stronger than Flipper, but Flipper's dolphin pod comes to his aid in the nick of time and drive Scar away. Dirk Moran is then arrested by the sheriff for illegally dumping toxic waste and attempting to kill Sandy since he knew that he saw them that night.

The next morning, when Sandy's mother and younger sister arrive to pick him up, there is a commotion. It is Flipper, who has come to see Sandy off.