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The Russo family except Alex (Selena Gomez), who is staying with Harper, are preparing for a vacation to the Caribbean. Alex decides to sneak a peek at Justin's personal belongings when his enchanted backpack attacks Alex trapping her as Justin had planned. When her father comes down to help he accidentally speaks of the forbidden book of spells and how he let Justin borrow it. She wants to go to a party in Brooklyn with Harper but her mother tells her she can not go to the party because she was untrustworthy even with Harper around. After her parents go out, and her brothers are not in sight, Alex puts a spell on the substation with the help of the family wand and forbidden book of spells to become a train and go to the party. Unfortunately, Alex and Harper miss the party after almost getting killed by a real subway train, only to be saved by Justin, using the full-wizard wand to do so. Unfortunately, the frame of the substation falls off, just as their parents come back. Because of this, Alex is forced to go on vacation with the rest of the family to the Caribbean, having to leave their wands at home. Along the way they meet a street magician and former wizard (who lost the full-wizard contest to his older brother) named Archie who wants to turn his girlfriend, Giselle, from a parrot back into a human by finding the Stone of Dreams, which has the power to grant any wish or reverse any spell, to turn his parrot back to human form.
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Later, after Alex was about to use a spell on her mother to convince her to let Alex hang out with a boy, she gets caught, grounded and forbidden to use magic. In anger, Alex wishes that her parents had never met and her wish comes true while holding the smuggled full-wizard wand and spell book. Jerry and Theresa do not remember Justin, Alex and Max.
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Alex, Max and Justin attempt to get a spellbook from Jerry by levitating it out of his pocket, but he catches it. Jerry is shown to still have his powers, since he never gave them up to marry Theresa. Justin asks him "hypothetically" what would happen if a wizard wished that his/her parents never met. Jerry says that they would disappear, but would first start forgetting everything. He says it would take a miracle to fix it, whereupon Justin mentions the Stone of Dreams, which Jerry says would work too.
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After consulting Jerry, Justin and Alex set off to find the Stone of Dreams, guided by Archie. Meanwhile Max stays at the resort to keep his parents from "meeting" other people. Over the course of the day, Max visibly begins losing his memory.
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Realizing the possibility of not existing if Alex and Justin don't find the stone, the two apologize to one another for all the trouble they caused one another. Along the way, Justin and Alex face many obstacles such as getting across a wide canyon, escaping death from quicksand, and getting across a narrow ledge. Jerry and Max start to go to help them but are stopped by Theresa who wishes to join them. They set off to help and arrive moments after Alex and Justin.
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Eventually, Alex and Justin succeed in finding the Stone of Dreams, but Giselle steals the stone. The kids tell Theresa and Jerry their story. Theresa doesn't believe them because she thinks she would never forget her own children. While trying to figure out how to reverse the spell without the stone of dreams, Jerry mentions that if one of the kids was a full wizard, they might be able to cast a spell to reverse it. While preparing to begin the full-wizard contest, Max finally loses all memory of who he is and gets sucked into a vortex of non-existence. Theresa remembers him slightly and runs away from confusion and fear. Realizing they must work quickly, Jerry officiates the wizard contest for Justin and Alex. After an intense battle involving lots of special effects and limited spells (involving the four elements), Alex eventually wins and becomes a full wizard.
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In trying to come up with a spell to fix everything, she turns to Justin for help. However, Justin has lost all his memory. Alex pleads with him not to leave, she then starts crying, telling him that he is her big brother. Justin believes her, and wants to help, but he cannot and is sucked into the same vortex that Max was. Alex tries to cast a reversal spell, but Jerry tells her it may be too late.
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Meanwhile Theresa is back at the resort, and seeing that Giselle has returned to human form, with the Stone of Dreams hanging by her neck, tries to get it from her. Archie manages to get the stone from Giselle, who wished to leave him now that she was in human form. He turns her back into a parrot and gives the stone to Theresa. Theresa then wishes to be where Alex, Justin and Jerry are, giving the former the stone. Jerry tells Alex she can wish for her brothers to reappear and still keep her full wizard powers. Instead she wishes that everything would become the same as it had been... and it does. She and her brothers all remember what happened, but their parents don't. Everyone regardless becomes closer from the events that had occurred, as the kids remember what they went through, and as their parents notice a change in attitude.They happily walk off together and credits roll.
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