In the Cerulean Gym, Misty is feeding the Pokémon in the tank. Horsea comes and happily eats the food. She also gives Seel a bowl of food. Psyduck is walking on the ledge of the pool and falls into the water. It starts to freak out and Misty pulls it out of the water.
A voice is heard and Misty goes to see who it is. Tracey appears at the door and Misty is happy to see him. Tracey asks if she needs any help with the Pokémon. Misty replies that there is a problem with Psyduck - it's scared of the water.
They go to the pool and Tracey tries to teach Psyduck some exercises but it gets confused, so Misty helps it out. Then Tracey goes into the water and asks Psyduck to just put his feet in the water. It does and it freaks out again. It runs away with Misty chasing it. Misty gets Psyduck back and it gasps for air. Tracey then gets an idea. They try to think of a way for Psyduck to get in the water without scaring it.
Psyduck is happy in the water now that it has an inner tube on it. Now they decide to try it without the inner tube. Tracey dunks his head into the water. Psyduck does the same and it freaks out again with Misty and Tracey chasing it.
Outside the Cerulean Gym, Sakura and her Espeon are feeling confident to challenge Misty for a badge. Sakura walks in the gym and Psyduck runs right into her. Misty apologizes to her and they have a talk. Sakura tells Misty that she came here for a rematch. Tracey introduces himself to Sakura. Sakura thinks that he is Misty's boyfriend but Misty tells her that Tracey is just one of Professor Oak's assistant. Sakura introduces herself to Tracey and they notice on how her Espeon is well behaved.
They go to the pool area and decide to have their rematch there. Sakura tells Misty if she has any badges and she shows Misty her other badges. Misty goes to open a drawer for the badges but they are not there. Misty then opens up the safe but the badges aren't there either. They decide to call Daisy up. Daisy tells Misty that they ran out of badges. Daisy also tells them that they can get more badges at another town. And so they are off to go to the town.
Misty puts the closed sign on the gym and she leaves Nurse Joy with the keys. It's getting dark and they are near the mountains. Espeon senses something and it starts to run off. Misty, Tracey, and Sakura start to chase it. Espeon jumps off a small hill and they see a man laying on the ground. The man says that he twisted his ankle and the kids help lead him back to his cabin. They bandaged the man's ankle and the man thanks them for their support. The man also introduces himself as Kinzo and he is the guy who makes badges. Misty introduces herself as the Cerulean gym leader and she asks for a case of badges. Kinzo gets angry because Misty expects him to just give badges away. Kinzo tells them that they have to work in order to get the badges. But for now they get a good nights sleep.
Right in the middle of the night, Kinzo wakes everyone up. He makes them run a lap over the mountain. At the end they are all tired out. Kinzo then tells them to cut the wood. After a long day of hard work, each of them has an uncolored Cascade Badge. Everyone then goes to sleep.
In the middle of the night again, Kinzo wakes them up and has them do another lap around the mountain. After the lap, they paint the badges. Now the badges have to dry off and he has the kids take another lap around the mountain. After they polish the badges, Kinzo inspects them and he says that they are good. Misty asks if they can keep the badges and Kinzo tells her that there is one more thing they have to do. Kinzo takes out his Feraligatr and he wants Misty to battle it. If she defeats Feraligatr then the badges are hers to keep.
Misty chooses Corsola but Psyduck pops out first. Scared of the Feraligatr, Psyduck runs and falls off the cliff. It rolls over and falls into the water. Psyduck freaks out because it hates the water. Misty comes and rescues Psyduck. Kinzo comes down and scolds Misty about having a water Pokémon that can't swim. He then leaves. The group has no other choice accept to teach Psyduck how to swim.
Misty tries to put Psyduck's face in the water. When Psyduck's face is in the water, it freaks out again and runs with Misty, Tracey, and Sakura following it. Kinzo opens the door and Psyduck runs right into him. Kinzo tells them that the badges have been stolen. They go inside and they see that the safe has been broken. Sakura sends out her Beautifly and Tracey sketches it. Sakura tells Beautifly to find the thieves. Beautifly comes back and they think the thieves have gone West.
Meanwhile, two people are walking on the road. The fat guy has the badges in his hand. Espeon comes and it blocks the two thieves's path. Then comes the gang and Sakura demands for them to give the badges back. The thieves call out their Zigzagoon and Poochyena and Tracey sketches them. Espeon uses Tackle on Poochyena. Zigzagoon tries a Headbutt on Espeon but misses. Misty tells Psyduck to use Scratch but Psyduck just trips all over itself. Espeon uses Swift but misses Poochyena which does a Tackle on Psyduck. Then Poochyena uses Bite on Psyduck's head. Psyduck starts to headache. Meanwhile, Zigzagoon starts to charge towards Espeon. However, Psyduck uses Confusion on Zigzagoon and then Psyduck uses a Disable attack. Misty then tells Psyduck to use Confusion. Psyduck lifts the two thieves and their Pokémon in the air and they get thrown into a tree.
The two people beg for mercy and they return the badges that they have stolen. Kinzo scolds the two people and they tell him that they won't steal anymore. The two people then run away.
Back at the cabin, Kinzo congratulates Misty and her Psyduck on winning. Kinzo then hands Misty a case full of Cascade Badges.
Back at the gym, Misty has her Corsola out and Sakura has Espeon. Espeon uses Tackle on Corsola which scores a direct hit. Corsola regains its energy and uses a Spike Cannon attack. Espeon dodges it and dives into the water. Espeon then jumps out of the water and uses a Swift attack on Corsola. Corsola uses Recover and its back in the game. Then Corsola uses Tackle on Espeon. Espeon gets hit but it bounces from the wall. Corsola uses Spike Cannon but misses all of the shots. Then Espeon uses a Tackle followed by a Psybeam. Corsola faints and Sakura is declared the winner.
Sakura cheers and Misty is happy that Sakura won. Misty checks up on Corsola to see if it's okay and then she gives Sakura a Cascade Badge. Sakura takes it and she gives Misty the Cascade Badge that she made.
Outside the gym, Sakura and Tracey say their goodbyes as Tracey is going to take Sakura to see Professor Oak.