The Moon Bear King was once a servant of the Moon Goddess, until one day, becoming corrupted by the Black Moonstone, he betrayed her and imprisoned her in a mirror. He also stole the magic scissors Calibrus, and shattered the moon stone into twelve pieces, giving each piece to one of his generals.
After this he uses General Dragon to gather the soul of children to turn into Grubs in order to strengthen his army. One such a boy is Kutaro himself who is turned into a puppet and has his head cruelly ripped off and is then simply thrown away. To further fuel his conquering campaign he has Pikarina abducted, and it is during this time that the Calibrus are stolen. Having realized Kutaro was the one responsible he sends a Weaver and several Grubs at him, but all of them were defeated. Panicking and desperate after Kutaro makes his way to acquire the powers of The Knight he orders General Tiger to chase him, threatening to rip his Moonstone Shard if he fails. After the General's defeat, he loudly claims to Kutaro that all the moon is his territory and that he will never escape, and then puts the defeated general as a cushion for his bed.
Knowing that Kutaro is on the Moonwood, he gives the order to General Rat to deal with Kutaro and as he corrupts the forest. After being encountered by the General, Kutaro fights and defeats him, which prompts the Moon Bear King to release General Snake, a being so dangerous that had to be sealed away because of her continuous secretion of poison, which the tyrant thought perfect to deal with Kutaro and the wood. As General Snake's body is toxic enough to turn any part of the wood she passes by into a dry desert she also swallows General Rat and eventually Kutaro and Pikarina. During this time General Rat tries to plead with Kutaro that he was forced to work for the Moon Bear King and is much to General Rat's dismay used as a boat to navigate the general's insides which eventually causes her defeat. Seeing the betrayal of General Rat the Moon Bear King demands an explanation to which Rat claims he helped Kutaro in order to gain his trust for his next machination, "wanting to hear more" he asks General Rat to come closer, at which moment he grabs the untrustworthy henchman and physically punishes him... till his last breath.
At this time the Moon Bear King offers a reward for Kutaro's head, a reward big enough to temp General Pig and General Sheep into attempting to battle the boy. After several encounters with the duo, Kutaro defeats the two and the patience of the Moon Bear King begins to reduce notably.
As Kutaro makes his way into the Wild Waste the General places his trust into General Horse and General Bull as General Monkey reports to him about Kutaro's progress. Eventually Kutaro defeats General Horse and then makes his way into the Coliseum where he clashes and defeats General Bull become the place's new champion. At this time the fight's referee is revealed to be General Monkey who contacts the Moon Bear King as he assures him of the success of his plan.
After Kutaro arrives at Halloween Ville and defeats General Robo Dog, the Moon Bear King contacts General Monkey and grabs him as he reveals how disappointed he's at the general, whom he held in high regard against Kutaro. Before punishing him General Monkey manages to reveal that Ezma Potts is the one "pulling Kutaro's strings", which confuses the tyrant as he cannot clearly remember who she is, after which General Monkey suggests how, to which the king states that they use the Moon Clock prompting the Moon Bear King to call General Rabbit and General Rooster in order to fix the clock at once.
In the meantime the Moon Bear King begins to wonder who Ezma Potts truly is as he cannot remember her clearly except for being the witch of the kitchen and why she would plot against him, as he finally realizes who she truly is he begins to plot his next scheme. When Kutaro defeats both Generals Rabbit and Rooster in the Land of Time, General Monkey seizes the chance to activate the Moon Clock which creates a gate between Earth and the Moon, allowing the Moon Bear King to syphon the souls of every child on Earth which would give him greater power, and sends General Dragon for this purpose. As Kutaro makes his way towards the General, the Moon Bear King captures Ezma Potts, as the two argue that if Kutaro can get the Moonstone the tyrant's reign will end, a claim he defies as he has become much stronger, but Ezma claims that Calibrus chose Kutaro for a reason. Irritated, he has her imprisoned in a mirror.
After Kutaro finally defeats General Monkey and acquires the last Moonstone Shard, Kutaro and Pikarina end in the sun, where Pikarina's father is. Revealing to The Sun that Kutaro was chosen by Calibrus and that Pikarina was transformed into a Pixie, The Sun and his two guards decide to face the Moon Bear King, but are instantly defeated as he has grown too strong from the children's souls.
When the Moonstone is restored and Ezma Potts restored into the Moon Goddess, she uses her powers to stop the Moon Bear King, but he proves to be much stronger thanks to the stolen souls of Earth's children and easily imprisons her again in the mirror. The Moon Goddess then pleads with him to stop for none of his actions will satisfy him as despite his conquers, he still is hollow, the Moon Bear King refutes this claiming he will get even more powerful and that nothing, not even The Sun can stop him, but the Goddess replies of what good is power alone for it does not help him, but he denies this as he reveals his power-hungry intentions,
Eventually Kutaro makes his way to Castle Grizzlestein and attacks the domain's defenses and engines which finally causes the castle to be destroyed, a loss the Moon Bear King deems insignificant as he claims he does not need a castle to govern. Finally, tired of Kutaro, the Moon Bear King decides to face him himself and releases his power enlarging him to a colossal size which the narrator describes as "the increase in mass being propotional to nastiness".
Using his enormous size the Moon Bear King, attempts to stomp Kutaro, but the boy cunningly uses the Ninja's bombs to hurt his feet, eventually giving him a chance to slice his body until his waist, as millions of souls are released at this time. The Moon Bear King then uses his large fan to electrocute and pound Kutaro, but his belly button at this point becomes a weakness Kutaro exploits by using the Hook, by pulling it around, which allows Kutaro to hack the Moon Bear King's body up to his torso, releasing even more souls in the process. Losing more of his patience, the Moon Bear King decides to use his arms to hack and slam at Kutaro, but his physical attacks are repelled by the Knight's Guard. Being repelled enough times once more slices the Moon Bear King up to his head, releasing more souls. The Moon Bear King's head is strong enough to breath fire, but Kutaro manages to seize his chance by hacking at the smoke and then pounds the tyrant head with the Wrestler's Slam, which stuns him making Kutaro capable of slicing his nose. Having losing all souls the Moon Bear King is reduced to his normal size. Not ready to accept defeat he attacks Kutaro, but Kutaro manages to slice him. The injured tyrant desperate claims to Kutaro that it was the Moonstone what he wanted, and attacks before being sliced again, he then reveals it wasn't the Moonstone but the White Castle, and then rushes to Kutaro who manages to slice him again, confused and even more agitated the Moon Bear King reveals that neither was his goal before being sliced once more as Pikarina asks what was his true goal.
Finally the reach into White Castle, where the Moon Goddess appears as a defeated Moon Bear King reveals his true self, the Little Bear, a small, shy, and scared bear with poor self-esteem and insecurity who just wanted power because he saw nothing good on himself, and reveals he just wanted Kutaro to be with him, while the Moon Bear King remnant demands the Little Bear to stop. Seeing the true colors of the Moon Bear King, instead of punishment or vengeance Kutaro offers a hand of friendship, an act that surprises the Little Bear due to the atrocities he has committed and seeing nothing worth on himself, but further encouraged to accept friendship his malice as the Moon Bear King begins to slowly vanish as he constantly tells the Little Bear to stop, and in a final act of defiance or insecurity of possibly both sides, the Moon Bear King destroys Kutaro's head in order to test his friendship claims before finally disappearing for good. The Moon Goddess then asks the Little Bear to share the Dark Crystal as it is too powerful for him, as she plans to use the Moonstone in order to fuse the stones and restore the balance, finally putting the Moon at peace and restoring the White Castle to its former glory and reverting Pikarina to her normal form. As everybody celebrates the victory, the Little Bear is all the more insecure about his friendship with Kutaro, knowing that he would have to leave, but Pikarina reassures him that friendship is a "very special ship" with Kutaro further reinforcing himself that the two will be friends regardless of distance. With his head finally restored, the Little Bear along the Moon Goddess and Pikarina sees Kutaro off, as the boy literally cuts his way back home through the space, finally returning into his home in Japan.