My Little Pony: The Movie premiered in American theaters on June 6, 1986. It was the first time the toy line saw an animation release of any kind. It ended up underperforming at the box office and received numerous negative reviews, though most pointed to Danny DeVito's performance in the film as the highlight that made up for the rest of the film.

At their home, Dreamcastle, the ponies are cantering through flowery meadows and grassy green fields with their animal friends. Elsewhere, baby Lickity Split is practicing a new dance step, as Spike accompanies her rehearsal on the piano. Meanwhile, at the Volcano of Doom, a wicked witch named Hydia and her two daughters want to spoil the ponies' fun. During the baby ponies' dance performance, Lickity Split attempts to add her own dance and ruins the whole performance. She is told off by everyone and runs away, followed by Spike, only to end up falling down a waterfall and trapped in a valley. The two witch sisters try to ruin the pony's festival, but thanks to the Seaponies, end up getting washed away in an overflowing waterfall.

The little ponies send out a search party for Lickity Split and Spike, while Hydia decides to make the Smooze, an unstoppable purple ooze that will eat and destroy everything in its path. It will also make anyone who is splashed by it grumpy and woeful. Her daughters go and collect the ingredients for the Smooze, leaving out the flume, an ingredient that they are afraid of. Hydia releases the Smooze which rages towards The My Little Pony Dreamcastle. All the ponies are forced to evacuate as the Dreamcastle and surrounding land is submerged by Smooze. The search party continues its attempt to locate Lickity Split before the Smooze engulfs them. Later, two pegasus ponies travel to the human world to fetch Megan, the keeper of the Rainbow locket, bringing Megan's younger siblings along as well. Megan releases the Rainbow into the Smooze, it is swallowed up and lost but this does halt the Smooze. Enraged, Hydia discovers the Smooze was lacking flume and sends her daughters to get the missing ingredient from an octopus-like plant monster that lives on a rocky outcrop near the volcano. The monster punishes the sisters, until Reeka bites a tentacle, thereby injuring the plant, and they escape with some flume. Hydia adds it to the Smooze which is reactivated.

Megan accompanies two ponies on a visit to the Moochick, who gives the trio a new home (Paradise Estate) and a map to find the flutter ponies who might stop the Smooze. A group led by Megan sets out to find Flutter Valley and Megan gets lost in a field of giant sunflowers, almost becoming a victim of the Smooze. They press on, through Shadow Forest. They find that the high narrow final pass into Flutter Valley is blocked by a giant spider and its web, and Megan is once more nearly in danger. When out of the canyon, the group finds Flutter Valley and meet with the queen who refuses to get involved at first, until baby Lickety Split arrives, safe and sound, along with a flutter pony who was rescued from a well. There is much argument about non-involvement in other ponies' problems from the flutter ponies. Even though the flutter pony who was rescued from the well pleads with their queen to help their "cousins", Rosedust still hesitates, until after baby Lickety Split appears to sway her enough to aid in the defeat of the Smooze.

The other ponies and forest animals are about to be eaten by the Smooze as the witches watch from their hot-air balloon. The flutter ponies come to the rescue and destroy the Smooze with their magic, uncover the rainbow and drop the witches into the sticky goo. With all problems resolved, the ponies take the children back home.