School has just ended for the summer, and Velma, Shaggy, and Scooby-Doo meet up with Fred and Daphne so they can go to meet Daphne's uncle, Thornton "Thorny" Blake V, who has given them summer jobs at his country club in Erie Point. The next night at the club's opening party, a huge frog-like monster suddenly appears and wreaks havoc. The gang decides to investigate the only person who has ever taken a picture of the lake monster, a lighthouse keeper named Mr. Uggins. He then tells them the story of the lake monster: how when people were first settling Erie Point, an old woman named Wanda Grubwort warned them not to come onto her land. They paid no attention to her, so she used her magic staff - which used moonstones as the source of her power - to turn a frog into a horrible monster that attacked the villagers. Wanda was later tried for witchery and burnt at the stake. The next day, Velma shows the others security footage of the lake monster meeting a mysteriously masked figure on the beach. They begin to zoom in on the figure to see its face, but Velma accidentally spills her green tea on the computer and destroys the footage. The next morning, they find Velma unconscious on the beach. Shaggy begins to tell her that he was very worried, but stops when he notices warts on her hand. Velma looks surprised, but guiltily assures them that it's nothing. After they fill her in on the latest monster attack; Daphne says that she saw purple paint on the figure's cloak and suggests they check out a boat that they saw on the way to Erie Point. Shaggy asks Velma out on a date; things go well until he lights a match to light some candles. Velma flings herself back in terror, though she is unsure why. Shaggy calls out the waiter, who turns out to be Scooby, who is angry at Shaggy for ignoring him and tries to ruin the date. Scooby bites Shaggy, causing Shaggy to knock over the table and drop the moonstone on the ground that he was going to give to Velma as a surprise. Fred and Daphne go to see the boat, but are then locked in a flooding room by the monster. However, they are able to escape. The gang drives to the home of the woman who is Wanda's descendant. They see the witch's figure through the windows, which is a very warty Velma. She claims to not be Velma and attacks the gang, knocking them out for a moment. The gang wakes up later and find Mrs. Trowburg, who says that her evil ancestor has possessed Velma. The gang realizes that they missed all the little signs - the warts, Velma's fear of fire, her love of moonstones and how she spilled the tea on the video of the witch because it was going to show her face - that should have proved Velma was up to something. The woman says that Wanda probably would have gone to the underwater caves; they arrive in the cave and Shaggy bursts out of hiding and commands Velma to stop. Wanda creates three new frog monsters and sends them after the gang; while Scooby, Fred, and Daphne run for their lives, Shaggy stays back and tries to help Velma fight the witch. Meanwhile, Fred and Daphne reach a dead end. The lake monsters then burst through the wall; at the same time, Shaggy tries to save Velma by singing her favorite song. Velma joins in, and manages to break free of the witch's control. The ghost of Wanda tries to grab her staff, but Scooby arrives just in time and smashes it into a rock, destroying Wanda and turning the monsters back into frogs. Fred and Daphne reconcile with each other and run back to Shaggy, who is confessing how much he really likes Velma. Velma and Shaggy kiss, but afterwards both agree that they did not feel a single spark and, it's better if they are just friends. They all agree as they do a group hug.
