It begins with Klonoa having a nightmare of the destruction of Phantomile. He later woke up in his bedroom and downstairs with his friend,Huepow,a ring spirit. His Grandfather,who has been raising him since the death of his parents,prepares breakfast. They heard a strange crash. Klonoa and Huepow run to the nearby mountain known as Bell Hill to investigate. They find a dark spirit,Ghadius and his henchman,Joka are searching for a magical moon pendant so he can turn Phantomile into a world of nightmares. While kidnapping the diva Lephise in order to prevent her from renewing the world with her Song of Rebirth,They couldn't find it. After defeating their monster,Klonoa finds a pendant under the bell and ventures back home,where his Grandfather tells to seek out the Chieftess.
While searching for the Chieftess,They soon learned that the water is flowing backwards. With the help of Karal,Klonoa and Huepow saves her mother,Pamela and the King of Jugpot and stops the water from flowing backwards,which would save the forest where the Chieftess tells them about Ghadius will use the Pendant to awaken an ancient nightmarish beast named Nahatomb. She asked them where the Pendant might be,which They answered that it's at his house. By the time they head back,Joka ,who has been eavesdropping on the conversation,begun bombing the house,killing Klonoa's grandfather and steals the pendant.
Huepow reveals to Klonoa that he is a prince of the moon kingdom,Cress. His mother receives a vision of Nahatomb will consume the world and sees that he will be stopped by the one who is not from Phantomile. So they brought forth Klonoa's Grandfather,who was holding Klonoa as a baby. Klonoa doesn't believe that and head towards the Temple of the Sun. While there,He defeats Joka with Huepow's help. Cress has finally appears where Huepow's mother confirms true about Klonoa's origin,believing it had to be his Grandfather,but it was him. Huepow reveals his true form. He had to conceal it before being sent to spent time with Klonoa.
The two confront Ghadius,who reveals that he will the pendant to get revenge on those who banished him. After they destroying him,Ghadius's mask is still alive,state that enough energy for Nahatomb's revival. As Ghadius is vanished for good,Nahatomb is awakened. Klonoa and Huepow manage to destroy Nahatomb and rescuing Lephise.
As Lephise sings the Song of Rebirth,a vortex appears in the sky,sucking Klonoa back to his own world. Huepow chases after him and grabs his wind ring,with Klonoa clinging on to it,but it slips from Huepow's hand and Klonoa is taken back to his home world. The vortex closes and Phantomile is restored as Huepow watches helplessly.