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Scooby-Doo, Shaggy, Velma, Daphne and Fred of Mystery Inc. are now celebrities in their hometown of Coolsville, after previously solving the mystery on Spooky Island in the previous film. The gang are attending the grand opening of the Coolsonian Criminology Museum as the guests of honour. Accompanied by the gorgeous news reporter Heather-Jasper Howe (Alicia Silverstone) and other members of the press, the gang enter the museum to open an exhibit which is full of costumes of their former foes from past mysteries.

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Shaggy and Scooby are frightened by the costumes, despite the fact that they are not alive. Velma reveals to Daphne and Fred that she has fallen in love with the museum's curator, Patrick Wisely (Seth Green). Unfortunately, both of them are too afraid and worked up in their jobs to become a couple and both walked away. But this momentous occasion turns sour when a storm causes a powercut in the museum and then a bolt of lightning shatters a window. In this distraction, Daphne notices a strange green mist floating about one of the glass cabinets. Daphne removes a curtain covering the cabinet and finds herself face to face with a terrifying and alive Pterodactyl Ghost. The prehistoric predator somehow became real and breaks free of its cage. The gang, believing it is simply a criminal in the costume, attempt to capture the pterodactyl in some curtains, but Shaggy and Scooby mess it up and are sent on a wild ride when their wrists get caught in the rope binding the pterodactyl and fly around the museum causing mayhem.

Then a mysterious masked villain calling himself the Evil Masked Figure appears and announces this is just the beginning of Mystery Inc.'s demise. And with that, the Pterodactyl Ghost snatches up two monster costumes from the display, dumps Shaggy and Scooby and then takes off into the sky with the Evil Masked Figure in tow. After the robbery, Velma discovers a secret hatch the pterodactyl came out of and also a real reptillian scale.

The following morning, Heather reports on the robbery and harshly criticizes the gang's tactics in the robbery and even takes context from early video footage to make it sounds like Fred dislikes Coolsville. Shaggy and Scooby decide they will from now on act like real detectives and join the other three in the laboratory. Velma gets data from her reptile scale and it says it is real! The gang proposes that it is one of the foes they unmasked. Daphne believes Jonathan Jacobo (Tim Blake Nelson), the original Pterodactyl Ghost is the culprit, but Velma reveals he died after a prison escape. The gang then decide that Jeremiah Wickles (Peter Boyle), the Black Knight, is behind the mystery and set out to his mansion.

Upon arriving at the mansion, the gang fall into a trap set up by Wickles, but Daphne frees the gang with her makeup kit and also a pair of salesmen and a buttercup scout who fell into the trap. The gang split up to search for clues. Scooby easily finds clues, but is oblivious to them and picks up sunglasses and underwear. Shaggy finds a stereophone and breaks it. Fred, Velma and Daphne find shiny green footprints that lead to the library. Velma states that Wickles is mad about the supernatural. They find a book that instructs how to create carbon-based predators or in other words: how to create monsters.