The movie begins with a heroine previously unknown in the Naruto continuity: Princess Fuun (Princess Gale in the US version). Fuun's nemesis, Mao, challenges her group with an army of undead soldiers. His dark intentions seem to prevail, that is, until Princess Gale and her cohorts, Shishimaru, Brit, and Tsukuyaku, unleash the power of the Seven-Color-Chakra upon him. They save the day, and Naruto, watching from afar, couldn't be more elated.
As it turns out, Naruto is partially imagining the situation. He is actually watching the scene in a movie, as is the rest of Team 7. But then, the audience of the movie starts to throw objects at the team for making so much noise while arguing with the cinema manager. Kakashi had sent them to watch it as preparation for their next mission: guarding Yukie Fujikaze, the actress who plays Princess Fuun, while she makes the next movie in the Land of Snow. As it turns out, Yukie is actually the princess of the Land of Snow, which was taken over by rogue ninja when she was a child. The leader of the rogue ninja, Doto Kazahana, wants Yukie's crystal necklace to unlock the Land of Snow's treasure, which Yukie's father had hidden before being assassinated. After various battles between Team 7 and the rogue ninja, resulting in the defeat of all and the death of Nadare their leader, Doto succeeds in obtaining Yukie's necklace, only to discover that the "treasure" of the Land of Snow is a generator designed to melt the snow and bring Spring to the country. Doto is then defeated by Naruto in a manner reminicient of Princess Fuun's defeat of Mao, involving "rainbow chakra".
With the rogue ninja all gone, Yukie has decided to resume her position as the princess of the Land of Snow, which will eventually become the Land of Spring after the technology behind the generator is perfected. Despite being a princess, Yukie intends to continue acting, and the next film she's starring in is an adaptation of one of Jiraiya's Icha Icha novels,(Makeout Paradise: The Movie) much to Kakashi's surprise, who says "That script! She's perfect!" (This was actually seen on episode 101, Kakashi staring amazed at a billboard advertisement of the movie.) At the end of the credits, the crew that make the Princess Gale movie say cut and all cheer, possibly breaking the fourth wall and meaning the entire movie was an actual movie.