Resume : At the start of the movie, Stitch is having a nightmare about turning bad again and causing destruction to Earth, including hurting Lilo. After Stitch wakes up, Lilo tests his goodness level by having him do a few good deeds. Discovering that they are late for hula class, they use their hovercraft to get there.
While at the hula class, Kumu announces that Lilo and her classmates have to prepare to perform at the local May Day festival. Each student is required to create an original dance. Lilo is inspired when he tells her about her mother being in the festival at her age and winning, giving her a picture of the event. After the hula class ends, Mertle insults Lilo by telling her that she will never be like her mother, causing her to start a fight with her. But after taking pictures of the brawl, Stitch forgets to flush the evidence. Kumu thinks that Lilo is not ready for the competition because of the fight with Mertle, but Lilo says that she is ready and "triple promises" to be good.
While preparing for the competition, Lilo and Stitch have a hard time coming up with ideas and Nani wants them to enjoy their family fun night. While watching Them! (film clip courtesy of Warner Bros.) on family fun night, Stitch's past comes back to haunt him and he goes berserk in the house. It seems that after Stitch was created, Jumba did not get a chance to fully charge Stitch's molecules as he was arrested by the intergalactic police who disrupted the process. At first, this glitch causes Stitch to revert to his old destructive programming, but it will ultimately destroy him if Jumba cannot create a fusion chamber before Stitch's energy runs out for good.
Meanwhile, Stitch's uncontrollable destructive behavior drives a wedge between him and Lilo and threatens to ruin her chances for success at the hula competition. Lilo and Stitch try to be inspired for their hula, but Stitch keeps malfunctioning because of his molecules. Since Lilo is so concerned about winning the competition, she fails to notice Stitch's glitch and believes his new behavior is deliberate and begins to neglect him.
Eventually, the two devise a hula based on the legend of Hi'iaka. Lilo gets increasingly mad at Stitch as he ruins their practice sessions. To make matters worse, Jumba is having problems creating the fusion chamber because he doesn't have the proper alien technology to build one and must resort to using mere household objects. However, just before the competition, Stitch arrives just before Lilo is to perform, wishing her luck. The two make up as Jumba finally completes the fusion chamber. However, Stitch has another abrupt fit. Lilo, confused, tries to come up to him, causing Stitch to accidentally scratch her face. Greatly upset that he hurt her, Stitch runs off to leave Earth, believing himself to be too dangerous. Lilo finally realizes that something is wrong with Stitch and, in the middle of her performance, runs off to help him.
As Stitch attempts to leave Earth, Lilo and the rest of the family desperately try to get him back to re-charge him. While taking off, Stitch has another outburst, which causes him to crash the spaceship in the Hawaiian mountains. Lilo rides over to the crash site in a mini space scooter where she finds Stitch close to death and hurriedly gets him into Jumba's fusion chamber. Sadly, it's too late and Lilo watches in tears as Stitch dies.
Taking him out of the chamber, Lilo clings to him as she tells him that while she kept saying that she needed him, he needed her more. She says that he is her ohana and, therefore, will always love him and breaks down in tears. But with his family's sincere love for him, Stitch is revived, much to everyone's joy. The family (along with David) then performs Lilo's hula dance together on the empty stage of the competition. Nani tells Lilo that their mother would be proud of her and a star twinkles in the sky to prove it.