The movie begins with 16-year-old Sarah Williams reading a book titled The Labyrinth in the park, but she cannot remember the last lines of the book. She then realizes that she is running late for babysitting her brother, Toby, and is scolded by her step-mother for this. Annoyed at having to care for him, and for taking her teddy bear, Lancelot, Sarah wishes Toby to be taken away by goblins. However, she does not realize that she has actually cast the goblin king, Jareth, who takes the baby away. He leaves her with the condition of finding Toby by solving his labyrinth within thirteen hours or he will turn Toby into a goblin forever.
On her journey in the labyrinth, she meets a friend, Hoggle, who tries to help her navigate her way around. However, he abandons her when she is confronted by the creature, Ludo, who ends up befriending Sarah after she frees him. In the meantime, it seems that Hoggle had been in Jareth’s employment, as he wanted him to lead Sarah back to the beginning of the maze. Jareth tells Hoggle to give her a drugged peach to make her fall into a trance.
Later, Hoggle reunites with Sarah and Ludo as they continue on their quest. When Sarah becomes hungry, Hoggle gives her the peach and she falls into a trance. In the trance, she is at a masquerade ball where Jareth confesses he loves her. However, she rejects him and falls out of the trance. Hoggle is later forgive for his actions by Sarah.
As they enter Goblin city, Jareth launches a goblin attack on them. Sarah manages to confront Jareth alone and recites the lines of the book she had forgotten. Jareth returns Toby to Sarah and both are sent home safely. Sarah is now appreciative of her family and is also reunited with her labyrinth gang. In the window, Jareth, in the form of an eagle, watches their reunion and flies away.
