The Mechanic and his henchmen infiltrate an old electronics warehouse in search of a mysterious motherboard. The ninja learn of the heist and arrive to thwart the attack. But they're completely in the dark as to what the Mechanic wants with it, so they head to the Mechanic's headquarters looking for clues. There, the ninja find the legendary, unreleased arcade game called Prime Empire. Realizing the game is missing a motherboard, Jay inserts the motherboard and the game boots up. While Jay plays the game, the other ninja make their way into the Mechanic's private office where they intercept a phone call intended for the Mechanic. It's a mysterious new villain called Unagami, for whom the Mechanic seems to be working. Meanwhile, Jay accidentally triggers an energy pulse that converts all of the arcade games in Ninjago City into Prime Empire arcade games. 

When the ninja discover that Jay has disappeared into the arcade game, they interrogate the Mechanic, hoping to learn who the mysterious Unagami is and how they can get Jay back. But the Mechanic refuses to speak. While they are at the police station, they learn from the Commissioner that something strange has affected all the arcade games in Ninjago City, turning them into Prime Empire ones. Fearing that whoever plays them will disappear like Jay, the ninja urge the Commissioner to pull the cabinets out of the arcade games. As the police rush to comply, the ninja head off to Dyer Island, an island outside Ninjago City, where they hope to find Milton Dyer, the creator of Prime Empire. On Dyer Island, the ninja instead meet Bob the Intern, who used to work for Dyer. Bob explains that Prime Empire was a project that was shut down by the company Dyer worked for because it was too dangerous, and that Milton Dyer vowed to get revenge on the gaming industry afterward. The ninja then conclude that Dyer must be Unagami. 

More and more people are disappearing in Ninjago City, while the ninja scramble to unlock the secrets of the Prime Empire arcade game. They decide to take the game to Cyrus Borg, hoping he can help them decode the programming and release all the players who have been taken (including Jay). Meanwhile, the Mechanic and his henchmen are resting in Kryptarium Prison when the jail's security systems begin acting up. Unagami hacks the security system and releases the prisoners, ordering them to get the Prime Empire arcade game back from the ninja. Mechanic, Ultra Violet, and Captain Soto escape, rush to Borg Tower and begin their assault, fighting their way past the building's security systems to reach the 100th floor. Borg tells the ninja that there is only one way to release the trapped players - by stopping Unagami. Cole plays the arcade game and tries to reach Level Thirteen. 

The ninja materialize inside Prime Empire and go immediately on the run when they discover a squadron of Red Visors waiting for them! They are pursued through a marketplace by the Red Visors and are cornered. Luckily, a group of rebels called the League of Jays arrives to save them. The ninja are initially confused but soon discover that during Jay's time in the game, he amassed a following of fans who have devoted themselves to his "teachings". The League of Jays helps the ninja escape from the Red Visors and leads them to Scott, the race car mechanic. As they cross the marketplace, the ninja make several discoveries. They learn that their ninja skills don't work in this digital world. Skills can only be bought or earned by playing the game. They then learn they have four lives, and when they lose those lives, they will be converted into energy cubes and whisked away by flying drones. 

Okino is a serious, duty-bound Samurai warrior who is unaware that Prime Empire is a game, since he is part of it. His job is to lead players through the three dangers of Terra Karana - the Forest of Discontent, the Cliffs of Hysteria and the Maze of the Red Dragon where the first Key-tana is located. Unfortunately, the game is rigged to be nearly impossible and Okino quickly fails his masters, who are dematerialized into cubes of energy. As more and more masters are "cubed", Okino begins to lose faith in his abilities. One day, Okino meets another Samurai like himself who is more successful in keeping her master alive. Okino internalizes this as a fault of his own so he trains and pushes himself as never before. Despite all his efforts, he loses more masters. Okino prepares to abandon his responsibilities when a final group of travellers arrive, seeking his help. It is the ninja. 

The Samurai guide, Okino, leads the ninja into the first of Terra Karana's deadly challenges: The Forest of Discontent, made up of deep, dark woods, filled with booby-traps. As the ninja fight their way through it, they begin losing lives, but with Okino's help, they survive and reach the middle of the forest. There, they are ambushed by the Whack Rats but the ninja are able to fight them off. Lloyd ties up the leader, a rat named Richie. In order to procure his release, Richie tells Lloyd that he knows about a "glitch" in the game, which will allow the ninja to bypass the rest of the booby-traps and reach the other side of the Forest. Okino soon realizes Prime Empire is not a real place, merely a simulation and he is part of it. Lloyd releases Ritchie, who guides the ninja to the glitch and into an ambush by Red Visors. Okino comes to their rescue and helps the ninja escape. 

The ninja arrive at the Cliffs of Hysteria where they meet Shifty, a merchant who runs a table at the base of the cliffs. Shifty sells the ninja some grappling hooks and rope. Unfortunately, the ninja don't have enough money to buy the "Rope of Supreme Durability" and opt instead for the "Rope of Questionable Integrity". Even worse, as they are buying the rope, they are spotted by one of Unagami's aerial drones. A squadron of Red Visors quickly arrives and pursues the ninja up the cliffs. The ninja, who only have ropes, must climb while the Red Visors have jet-boots and are able to catch up quickly. During the ensuing battle, Cole is nearly lost, but is saved at the last moment by Kai, who makes a daring leap onto the back of the flying drone and uses the drone to blast the Red Visors. They learn that Unagami is using the energy cubes to build a portal into Ninjago City. 

As the ninja and Okino approach the Maze of the Red Dragon, Unagami uses his control over Prime Empire to briefly "pause" all the players except Okino. He appears before Okino, urging Okino to betray the ninja and not help them against the fearsome Red Dragon that awaits the ninja at the heart of the maze. If Okino betrays them, Unagami promises to bring him with into the real world. He then disappears and restores the ninja back to normal. The ninja arrive at the heart of the maze and find themselves outmatched by the Red Dragon, and appeal to Okino for help. Okino struggles with his decision but cannot in good conscience betray the ninja. He defies Unagami, his creator, and helps the ninja defeat the Red Dragon by revealing its weakness: a scale on its chest. The ninja defeat the dragon and Jay delivers the final blow. The Red Dragon changes colour and vanishes into an amulet. The ninja then continue their quest. 

Having obtained the first Key-tana, the ninja enter the second of Prime Empire's game zones, Terra Technica, where they learn that the second Key-tana can only be won by winning a dangerous race called the Speedway Five-Billion. The ninja realize that they don't have enough game credits to enter the race but earn credits when Jay and Nya win a dance competition. The dance competition starts to go smoothly, but Jay and Nya begin to realize that the blue haired couple who threaten them earlier begin to cheat their way to victory when they kick their competition out and this makes Nya and Jay aware of their rivals cheating antics. Red visors soon arrive and while the ninja are fighting them off, Jay and Nya use them to gain advantage of this and end up earning them more points and messing up the rivals moves. Jay and Nya perform one more dance move and win the dance competition. The ninja then head to Scott's garage for cars 

The ninja appeal to Scott for help in obtaining 5 race cars. Scott shows them his junkyard where he has 5 vehicles that may be repairable in time. Lloyd heads off to the racetrack and watches a live race, hoping to learn as much as he can about the brutal Speedway Five-Billion. One driver in particular impresses Lloyd - a race car driver known as 'Racer Seven'. Lloyd recruits her to help them win the race. 

Red Visors discover the location of Scott's garage and Scott sacrifices himself to buy the ninja a chance to escape and they race off. The ninja enter the Speedway Five-Billion in the nick of time, just as the race is starting, and find themselves quickly overwhelmed. Cole and Kai bravely sacrifice themselves to buy their teammates a chance to win.

Devastated by the loss of Cole and Kai, the surviving ninja push on into Prime Empire's third and final game zone - Terra Domina. They ultimately arrive at the upper-most level where Unagami's voice tells them that one of the ninja will now face the form of his own most dreaded challenger. Lloyd is selected and finds himself facing an avatar of Harumi. Lloyd manages to defeat Harumi and wins the third and final Key-tana for the team. Lloyd, however, also loses his final life in the process. 

Zane and P.I.X.A.L. visits an old childhood contact of Milton Dyer's who tells them that Dyer used to frequent an old video arcade hall called Buddy's Pizza. They head there to search for Dyer, but run into the Mechanic, who kidnaps Zane. P.I.X.A.L. ultimately finds Milton Dyer, who tells her that Unagami "is the game". He had not realized how dangerous it was.

The Mechanic's henchmen capture Master Wu and bring him to the Mechanic's warehouse. The Mechanic uses him as leverage to coerce Zane into revealing the location of the motherboard which he requires to open the Manifestation Gate, through which Unagami is to enter the real world. Wu manages to activate a GPS location tracker, which reveals his location to P.I.X.A.L. However, she and Dyer arrive too late. Zane is hooked up to the Manifestation Gate as a type of processor.

Jay must stand alone against Unagami in the end-game, after Nya loses all her lives due to being stabbed through the back by an NPC named Sushimi, yet Unagami has a bigger battle in facing the truth about his own identity. Jay discovers that Unagami is actually the AI of the game and not Milton Dyer. Unagami uses the energy cube from Nya to complete the Manifestation Gate, and travels through it. Jay follows after him. 

Unagami breaks into the real world and terrorizes Ninjago City along with his army. Jay releases Zane from the gate. Zane, P.I.X.A.L., and Master Wu fight off Unagami's forces while Jay chases Unagami himself. Jay leads Unagami to the top of Borg Tower, where he is met by the others along with Milton Dyer himself. Dyer explains to Unagami why he shut him down and that chaos and destruction was not what he was made for. Eventually, Unagami understands. He takes the form of a small child and agrees to set everyone trapped inside Prime Empire free, including the other ninja, the trapped players, Scott, and the NPCs. Jay, Zane, P.I.X.A.L., and Wu reunite with the other ninja while Unagami and Milton Dyer live happily together.