Unlike the more familiar animated Pinocchio by Disney, there are no song interludes here, and characters added to the story by Disney (such as Jiminy Cricket) are not included. Producer Francis Ford Coppola and director Steve Barron, (known for the first Teenage Mutant Ninja Turtles film) closely adhere to Carlo Collodi's 1883 novel and use the visually timeless setting of a Czechoslovakian village. Jim Henson's puppet studio skillfully brings this Pinocchio to life.
Long ago, in his youth, Geppetto (Martin Landau) loved but did not court Leona (Genvieve Bujold), who married Geppetto's brother instead. In that earlier time, he carved her initials with his onto a tree. Now his brother is dead, and though he still feels for Leona, he is still too shy to woo her. Instead, the old puppet-maker goes into the forest and cuts down a tree in order to make a puppet just for himself. The tree is the same one he carved his initials into when he was younger, and it has the magic of his love in it. Soon after the puppet Pinocchio is made, he comes to life. Aside from being made of wood, he begins to live the life of a perfectly normal little boy. He even goes to school.
Lorenzini, an evil magician who runs a children's puppet show, hears of Pinocchio and wants to use him in his show. Lorenzini lures children to his show, only to later turn them into donkeys. Donkeys are useful creatures, and Lorenzini makes a lot of money selling them. Through many trials and tribulations, the puppet-boy earns the right to become the human boy Pinocchio (Jonathan Taylor Thomas).