Joe lives with his sister Mindy, dog Buster, and mom and dad in Minnesota. His dad has a sometimes friendly-sometimes not so friendly gardening competition with his next door neighbor Mr. McCall. Buster likes to attack his garden on a regular basis, and McCall constantly threatens to call the police and have the dog locked up. He also has a son, Moose, who is friends with Joe.
Joe's dad decides to visit the lawn ornament store to get something new for his yard. He already has a deer, some squirrels, and other miscellaneous ornaments that he decorates for the holidays. This time, he settles on two extremely ugly gnomes. Joe starts screaming for his sister almost as soon as they get home because the gnome has his arm. No worries though; it's just a mean joke, one of the many that he plays on his sister.
It doesn't take long before Joe starts noticing something odd about the gnomes. McCall wakes up one day to find some of his melons busted and blames Buster, but Joe finds seeds stuck in the gnome's mouth. McCall wakes up another day and sees that someone drew smiley faces on his melons, and Joe sees black paint on the gnomes. When Buster runs in the neighbor's yard, Joe calls his back with a dog whistle. Buster attacks the lawn gnomes, and Joe swears they look scared. It happens a few more times, but no one will believe him.
Joe tells his parents, and they think he's the one doing all the stuff to the neighbor. He wakes up in the middle of the night to comfort his dog, which his parents made him leave tied up outside. His sister sees him sneaking out and tells his parents the next day, leading them to ground him for pulling all the pranks. This all leads up to Joe sneaking out to catch the gnomes in action after they throw black paint at his newly painted house. Moose sees him, they see the gnomes move, and the manage to run away.
The next day, they find that someone threw white paint all over Mr. McCall's car. Moose and Joe decide to stay up late and catch the gnomes in action. Mindy sees them and follows them outside. The gnomes come to life and announce that they are Mischief Elves. They once lived in some fairy tale type land until people found them and dragged them away. They beg the kids to help them liberate the six other gnomes in the store.
The kids go to the store, sneak inside, and discover that there are actually hundreds of gnomes there. They all come to life, the original ones reveal that they just like playing tricks on people, and the gnomes attack. Buster comes to the window, and Joe tries to lure him downstairs, thinking that he'll save them, but the dog just runs away. After freaking out as the gnomes get closer (and plan to use them as trampolines or in a game of tug of war), Joe reaches for his whistle.
One blow causes the gnomes to lapse into a trance and pretty much pass out. Joe realizes that it was never Buster that scared them but his whistle. The kids all rush home, laughing and cheering about what happened. The next day, their mom warns them to be nice to their dad since someone stole his gnomes. Dad then comes home with a brand new massive gorilla for the front yard. As his parents fight over it, Joe looks back and sees the gorilla wink at him.