Plot

After a great catastrophe, the souls of Nezha and Aobing are saved, but their bodies face ruin. To give them new life, Taiyi Zhenren turns to the mystical seven-colored lotus in a daring bid to rebuild them and change their fate.

Ne Zha and Ao Bing are out together, when they are both struck by godly lightning, destroying their bodies. Master Taiyi Zhenren spares their souls by exhausting his seven-colored sacred lotus, regenerating their bodies. Ao Guang, the dragon king of the East Sea and Ao Bings father, believes his son is dead and so he sends Shen Gongbao to invade and attack Chentang Pass using demons from underneath his palace and the other dragon kings. Upon defending Chentang Pass, Ao Bings body disintegrates and Ao Guang suggests Ao Bing and Ne Zha share Ne Zhas body for the week, so they can complete three trials to become an immortal and win the antidote to restore the sacred lotus.

Ao Bing and Ne Zhas trials are all set by the leader of the heavenly Chan sect, Wuliang. The trials are usually completed by the demon hunters of sect. As the trials go ahead, Ne Zha takes sleeping pills, allowing Ao Bing to temporarily take complete control over their shared body. Ne and Ao complete the initial two trials, defeating an entire village of demons and a master of demons.

Ao Guang orders Shen Gongbao to guard the Chentang Pass, and he temporarily reconciles with his younger brother Shen Xiaobao, who watches over Ne Zhas second trial and witnesses Shen Zhengdao, the Shen family patriarch being violently captured by the sects force. He has returned to warn Gongbao of the sects plan to plunder their village, before dying of the impact.

Just before Ne Zha attempts his second trial, he is told that the Chentang Pass was obliterated, which enrages him and he refuses to have Ao Bing help him with the third trial, which he passes with ease. Ne Zha retrieves the potion and brings it to Taiyi, who works on restoring the sacred lotus. Once he has completed his mission on restoring the lotus, Taiyi uses it to regenerate Ao Bings body and Ne Zha joins a quest to trap the dragons in a giant cauldron belonging to Wuliang. Unfortunately, the plan backfires when the other three dragon kings negotiate with Wuliang and they escape the cauldron.

Ao Bing, Taiyi, Lil Jing and Lady Yin all arrive at the cauldron unscathed and they explain the truth of how Wuliang was the one who ordered for Chentangs destruction, but not the dragons themselves. In a flashback scene, Shen deduces the dragon kings involvement in the massacre and how they had betrayed Shen. The Chan sect had planned to blame the attack on Ao Guang and destroy the dragons. Ne Zhas parents managed to escape the force, whilst Shen stayed behind to defend the city.

Both the parties do battle, but Wuliang manages to trap all of Ne Zhas army into his cauldron, before turning up the heat of the cauldron, causing them to all be transformed into elixirs. Ne Zha begins to grieve but he manages to harness the cauldrons samadhi fire and solidify his brand new body and is reborn. Ne Zha and Ao Bing break the cauldron, causing the armies to retreat. Once they are all gone, Ao Guang helps the remaining dragons to hide somewhere in the sea, whilst Ao Bing stays with Ne Zha to expose Wuliang.

As the credits roll, Wuliang heads to a secret prison in hopes of joining forces with Shen Gongbao and his father Zhengdao, but he becomes trapped after cursing a warden to sleep. Ne Zhas older brothers, Jinzah and Muzha are called upon to meet Wuliang at the prison, but when they arrive, they cannot find him.