As Hades goes through his usual job of bringing fresh souls into the Underworld, Pain and Panic tell him that one of the souls is not cooperating. The soul approaches Hades, introduces himself as Jafar and all but demands to be sent back. Hades is at first unconcerned, but they find a common ground: Jafar tried to overtake Agrabah, Hades is trying to overtake Mount Olympus and they both have been defeated by "upstart boys", but each villain thinks his nemesis is superior. They make a bet that they can defeat each other's respective hero. So Hades gives Jafar a new snake staff, which makes him flesh and blood so long as he holds it, and tells him to attack Hercules while he's training on Philoctetes' island.
At said island, Phil is trying to teach Hercules not to "barrel through" and to "use his noodle" from time to time. Suddenly, Jafar pops up and creates a huge bull-like red beast, a griffin and a minotaur to go after Hercules. With Phil tied up, Hercules does his best to wrestle the beasts. Jafar laughs at how slow Hercules is, until Hercules picks up Phil's "statue head" house, bashes the beasts and proceeds to smash it on Jafar, who gets knocked all the way back to the Underworld - although Phil scolds Hercules by stating "I said use your head - not my house!". Hades, upon learning that Jafar's foe Aladdin is 'a mere mortal', decides to send Pain and Panic to Agrabah to take Aladdin out - just for 'a chuckle or a two'. When the minions arrive in the Arabian city, they first mistake Abu for Aladdin, but the real Aladdin, along with his wife Princess Jasmine, arrive on the Magic Carpet. After a scuffle, Pain and Panic are about to finish Aladdin off, but Aladdin convinces them to look into his lamp (by telling them not to look into it). Genie's hand punches them all the way back to Greece (a town parallel to an Arabian city) and down into the Underworld (this is Genie's only appearance in this episode).
Hades admits that Aladdin is tough, but wants to concentrate on beating Hercules first. Then Jafar offers an idea: what if Hercules and Aladdin had a misunderstanding between them and get into a fight? Hades likes the idea and puts the plan into motion. The first part is kidnapping Abu from Agrabah and Icarus from Prometheus Academy (both using bananas as bait). When Hercules can't find Icarus, an old man (Jafar in disguise) fools Hercules by telling him that a "young rogue named Aladdin" kidnapped him. Hercules gets angry and runs off to find Aladdin. Later, in Agrabah, Aladdin and Jasmine can't find Abu, and Pain and Panic disguise themselves as Hercules and tell him that Hercules kidnapped Abu.
When Herc, Phil and Pegasus arrive in Agrabah, Al, Jasmine and Carpet give them a not-so-warm welcome. Hercules and Aladdin start the fight, Hercules barreling in and Aladdin sidestepping each blow. Aladdin gets Hercules to chase him through the alleyways of Agrabah to an old abandoned building. He then gets Hercules to punch enough holes in the walls to bring most of the house down on top of Hercules. When Herc holds it up, Aladdin demands Herc to tell where he hid Abu. Herc responds by wanting to know where Aladdin took Icarus. Before they can work it out, though, the building collapses on both of them.
While Jafar and Hades believe the heroes have been destroyed, Hercules gets himself and Aladdin out of the rubble. They piece together that it was a setup and that Hades and Jafar are holding Icarus and Abu in the Underworld. Aladdin wants to charge in to rescue them, but Hercules thinks of another way. While Hades tells Jafar of his plans for Olympian domination (and offers Jafar the 'Lord of the Dead' title while doing this), Pain and Panic yell that Hercules and Aladdin are coming their way.
Jafar is sent to stop them. He blasts Aladdin in an ice block and creates a giant scorpion to take on the slow Hercules. But there's one problem: the man in the ice is Hercules, disguised as Aladdin, and the one fighting the scorpion is Aladdin disguised as Hercules. Shocked, Jafar is unable to stop Aladdin from nabbing the snake staff and tossing it to Hercules, who snaps it in half. The spirit of Jafar is dragged down into the River Styx for good. Icarus and Abu meanwhile have escaped and begin punching Hades, until he threatens to make them "permanent residents".
Hercules and Aladdin congratulate each other before Aladdin takes Jasmine, Abu and Carpet back to Agrabah. Aladdin tells Hercules that he'll make a great hero someday. Icarus, having bonded with Abu, asks Hercules if they can get a monkey.
- When Phil makes a pass at Jasmine, she tells the satyr that she is married while showing her wedding ring. This indicates this adventure follows Aladdin and the King of Thieves.
- Iago is notably the only main character from the Aladdin franchise absent during this episode. This is due to these events occurring after Aladdin and the King of Thieves, in which Iago left to tour the world with Cassim. However, Iago was mentioned here by Jafar who was still furious at how he had betrayed him during the events of The Return of Jafar.
- The episode implies that the events of Aladdin actually took place around the same era as Ancient Greece. A similar hint was given in The Return of Jafar, where Genie commented that he had "raced with Hercules" during his song when he explained his travels across the world. However it's historically impossible that the two occurred around the same time, as there are at least 100 years between the Ancient Greek and the Abbasid Caliphate.
- Also, during A Whole New World song that was seen in the original movie, a place that could be considered Greece is shown.
- The disguise Jafar used to trick Hercules into fighting Aladdin was the same one he used to recruit Aladdin to go to the Cave of Wonders in the first film.
- When Hades makes a new snake staff for Jafar, he tells Jafar that he will be flesh and blood as long as he holds it - with Jafar instantly becoming a spirit again when Hades briefly takes it from him. However, Aladdin later takes it and throws it to Hercules to snap. Before it's snapped, Jafar mysteriously remains flesh and blood.
- Jafar's death in "Hercules and the Arabian Night" is almost similar to that of The Return of Jafar, where after his source of life (snake staff in "Hercules and the Arabian Night", Jafar's lamp in The Return of Jafar) gets broken, he gets killed (via electrocution in The Return of Jafar, via imprisonment in River Styx in "Hercules and the Arabian Night"). Coincidentally, both defeats also involved a lethal substance resulting in their death (in The Return of Jafar, it was lava which destroyed the lamp, and Jafar by proxy; while in "Hercules and the Arabian Night", it was the waters of the River Styx, which was where dead souls were trapped under and potent enough that even Hades is unable to get out of it if he falls in.)
- The Genie has the shortest appearance in the entire episode, only consisting of a single fist out of the lamp. This was likely because neither Robin Williams nor Dan Castellaneta were available.
- Phil did say one of Genie's quotes from the first Aladdin movie when Hercules thought of a way to get to the Underworld to save Icarus and Abu: "He can be taught!"