E.T.'s fellow travelers come back to rescue him just in the nick of time. The children, along with their mother and the head of the government organization, bring E.T. back to his ship where they all share a teary-eyed farewell as E.T.'s ship launches back into space.
The story begins as an alien ship lands deep in the woods and several inhabitants, all with glowing red chests, disembark and begin collecting plants. Soon, however, they are interrupted by faceless government agents who begin chasing one of the aliens back to the ship. In a panic, the alien's fellow travelers launch their ship, accidentally leaving their scared compatriot behind.
We then cut to a household with a mother and her three young kids Michael (Robert MacNaughton), Elliott (Henry Thomas), and Gertie (Drew Barrymore). While getting a pizza from the delivery man, Elliott hears a sound and is spooked when he sees a creature from another planet in his tool shed. The alien is also startled and flees back into the woods behind their house. Elliott searches the woods the next day, leaving a trail of Reece's Pieces for the alien to follow. He is unaware that government agents are also combing the woods, seeking the alien.
That night, the alien follows the candy trail back to Elliott's house, and he decides to take the alien in and name him "E.T." Elliott also confides his secret alien friend to Gertie and Michael, and the kids agree to keep the secret so that E.T. will not be taken away and experimented on. They learn that E.T. wants to contact home, and the kids collect various electronics and tools for him to build a satellite communicator. They also learn that E.T has telekinetic and healing abilities. Little do they know, however, that the government has discovered that E.T. is staying in their house.
E.T. soon forms a bond with Elliott, and the two become linked emotionally and physically. E.T. successfully builds his communicator and activates it in the woods (accompanied by the flying bicycle scene), but is growing sick having been cut off from his species (it is clear all the aliens share an emotional/physical bond with each other similarly to how E.T. has bonded with Elliott). Elliott also grows sick as a result. Michael and Gertie decide they need to confide in their mother as the situation grows more dire, and as they do so, the government also raids their house.
The government agency (the leader played by Peter Coyote) admits they aren't trying to kill E.T., and acknowledge he was probably left by accident. E.T. ends up dying, despite the government's attempts to save him. E.T.'s bond severs his link with Elliott. The agents let Elliott say good bye to E.T. in private, but E.T. suddenly revives as his chest begins glowing because his fellow alien travelers are returning to Earth. Elliott, Michael and some of Michael's friends then rescue E.T. and take him to the woods, followed closely by Gertie, their mom, and the lead government agent. They find E.T.'s compatriots waiting for them here, and E.T. shares a farewell with the three children who have come to love him. E.T. then boards his spaceship and it blasts off, leaving a rainbow in its wake.