A fictional account of Jordan's first retirement from the NBA, the film was released theatrically by Warner Bros. under the Family Entertainment brand label on November 15, 1996. It plays out as an alternate story of Jordan's initial return to basketball, this time with him being inspired by Bugs Bunny and friends. Despite mixed critical reviews, Space Jam opened at #1 in the US and grossed over $230 million worldwide.
In 1993, professional basketball player Michael Jordan announces his retirement from the NBA to follow in his father's footsteps and turns to a career in baseball. Despite his popularity, Jordan's talent for baseball is nowhere near his talent for basketball. Meanwhile, the Nerdlucks, a group of criminal aliens led by their boss Mr. Swackhammer (voiced by Danny DeVito), plot to capture the Looney Tunes, who really exist in a secret animated world called Looney Tune Land (hidden at the center of the earth), and make them their newest attractions at Moron Mountain, a failing amusement park. Swackhammer believes enslaving the Tunes in this way will bring in more customers and save Moron Mountain from foreclosure.
They arrive in Tune Land and since the aliens aren't very intelligent or tall, the Tunes bargain for their freedom by challenging the Nerdlucks to a basketball game. To ensure their victory, the Nerdlucks return to Earth and steal the talents of Patrick Ewing, Larry Johnson, Charles Barkley, Muggsy Bogues, and Shawn Bradley, who are rendered incapable of playing basketball as a result. Through their basketball, the Nerdlucks absorbed the stolen talent into their bodies, and transform into gigantic creatures now called the Monstars that the Looney Tunes are unable to defeat.
To help the Tunes win the game, Bugs Bunny abducts and recruits Michael Jordan, who reluctantly agrees to help after the Monstars squash him into the shape of a basketball and bounce him around like one. A new arrival named Lola Bunny, on whom Bugs develops a crush, is added to the team thanks to her talent. Bugs and Daffy Duck go to Jordan's house to collect what he needs to play, barely dodging his family dog Charles. Jordan's publicist, Stan Podolak (Wayne Knight), sees Bugs and Daffy return to Tune Land, follows them, and stays to support Jordan, whose team will be called the Tune Squad.
Back on Earth, the sudden inability of five top NBA players to play basketball captures the attention of the media and the rest of the NBA as more and more NBA teams refuse to take the court, fearing the same phenomenon will attack them. The five NBA players themselves go through a series of physical, medical, psychological and spiritual tests to figure out why they have no talent anymore, to no avail. Eventually all NBA stadiums are quarantined and the season is declared officially over until further notice.
Back in Looney Tune Land, the two teams take the court. Despite Jordan's leadership, the Monstars dominate the first half of the game. Stan sneaks into the Monstars' locker room and overhears them talking about how they stole the talent from the NBA players, but he is detected despite hiding in a locker and scorched as a result. Stan then informs Jordan and the Tune Squad that the Monstars stole the talent from the NBA players. Bugs then motivates the team with a "special drink" and the Monstars' commanding lead is reduced to a significantly smaller margin. Seeing Swackhammer angry that the Monstars did not steal Jordan's talent, Jordan takes the chance to raise the stakes. If the Tune Squad wins, the Monstars must give the NBA players their talent back, but if they lose, then Swackhammer is to spare the Looney Tunes in exchange for Jordan. He readily accepts it and Bugs tries to talk him out of it, all the while being aware of what it means if Jordan is subjected to humiliation on Moron Mountain for all time.
As the game resumes, the Monstars, under orders from Swackhammer, begin playing even dirtier than before. As a result, the Looney Tunes are injured, one by one, until only Jordan, Bugs, Lola, and Daffy are left, leaving them short one player. In the process, Bugs saves Lola from being squashed by one of the Monstars, which fills Lola with gratitude, and she kisses him. Reluctantly, Jordan puts Stan in the game, and though he is quickly taken out of action, he manages to bring the Monstar's lead down to one. With 10 seconds left, Marvin the Martian, the referee, tells them that if there is no fifth player, the team will forfeit the game. At the last second, Bill Murray, who had played golf with Jordan earlier in the film, appears in the stadium and joins the team, breaking the fourth wall along the way, as Swackhammer says, "I didn't know Dan Aykroyd was in this picture," referring to Murray's co-star from Ghostbusters.
With only seconds left, Murray pulls some clever manueuvering and gets the ball to Jordan. Extending his arm to superhuman lengths (since the laws of physics work differently in Tune Land), Jordan makes the basket and wins the game. Although Murray has always dreamed of being an NBA player, and Jordan is impressed with his skills, Murray decides to retire from basketball forever. Jordan then helps the Monstars realize that they're bigger than Mister Swackhammer, who confronts them for losing. Fed up with their abusive boss, the Monstars tie him up to a rocket and send him to the moon. At Jordan's request, they reluctantly return the stolen talent to the other players by transferring them to a basketball, which is how they stored the stolen talent earlier in the film. This reverts the Monstars back to the tiny Nerdlucks. Refusing to return to Moron Mountain, the Nerdlucks decide to stay with the Looney Tunes, who only agree if the Nerdlucks can prove themselves to be 'Looney', which they arguably complete on the spot. As Jordan leaves, he tells Bugs to stay out of trouble. Bugs assures him he will and shares a kiss with Lola.
After Jordan and Stan return to Earth in the Nerdlucks' spaceship, Jordan makes a dramatic appearance with Stan at a baseball game to the cheers of the audience, despite being late. The next morning, Jordan and Stan give the stolen talent back to the NBA players, who immediately regain their lost skills. Jordan is later prompted by his rivals to return to the NBA, mirroring his real-life comeback with the Chicago Bulls.