On Omri's ninth birthday, his best friend Patrick gives him the disappointing gift of a small plastic Indian figurine. Omri also receives a white metal medicine cupboard from his brother. The only key in the house that fits the cupboard's lock is the key to Omri's great-grandmother's jewellery box. Omri puts the plastic figurine in the cupboard and locks it with the key, only to discover the following morning that the figurine has come to life as a three-inch-tall Iroquois Indian man.
Though the tiny man, whose name is Little Bear, initially believes that Omri is a god, he quickly realizes that Omri is only an ordinary, albeit giant, boy, and proceeds to boss him around. Little Bear explores the house and garden, while Omri provides for Little Bear's needs. Little Bear's rejection of the gift of a tipi (as Iroquois live in longhouses) leads Omri to research more about the Iroquois people, causing him to rethink some of his stereotypical views of American Indians and to realize that Little Bear is a real person with a history and culture. Omri is particularly affected when a plastic figure of an elderly Native American chief dies of shock upon being brought to life. Little Bear, however, claims the old chief's headdress, as he is the only one around to take the title, and becomes more demanding than ever.
Patrick offers Omri a gift of a plastic cowboy so that Omri can play properly with his toy Indian. Omri rejects the gift, which leads to letting Patrick in on the secret. Overwhelmed with excitement, Patrick urges Omri to bring loads of plastic people to life, while Omri protests that the people would be real, not toys to be played with. Nevertheless, Patrick uses the cupboard without Omri's knowledge, bringing to life the plastic cowboy, who turns out to be a man named Boone from an entirely different place and time as Little Bear. Over Omri's objections, Patrick introduces Boone to Little Bear. The two tiny men mistrust one another from the start, with Boone deriding Little Bear as "savage" and "dirty." The antagonism comes to a head when Omri and Patrick introduce the duo to television; when Boone cheers the slaughter of Native Americans in an old Western, Little Bear shoots him in the chest with an arrow.
Little Bear is immediately guilty, but does not know enough medicine to save Boone, while the boys are far too large to help. Omri brings to life the figure of a World War I medic, who turns out to be a man named Tommy Atkins from the trenches of France. Tommy, believing that this is a strange dream, saves Boone's life before being transported back through the cupboard. Little Bear continues to treat Boone's injuries, and the two gradually come to trust one another. This incident finally impresses upon Patrick that the tiny people are not toys. Though both boys have become attached to Boone and Little Bear, they agree to return everyone to their own time.
As chief, Little Bear demands a bride. Little Bear chooses from an array of plastic Native American figurines and Omri brings to life an Iroquois woman called Bright Stars (Twin Stars in some editions). The two boys and the tiny people have a final celebration, during which Boone becomes Little Bear's blood brother as does Omri, before the miniature people are sent home through the cupboard. Each boy keeps the now-plastic image of their friend as a memento, and Omri gives the cupboard's key back to his mother so that he will not be tempted to bring them back.
