Singing star Sugar Kane does a publicity stunt, by letting another woman skydive for her, and then switches places with her, so the surfers can save her. A leader of a biker-gang, Rat Pack, Eric Von Zipper decides to kidnap Sugar Kane. The usual gang of kids then decide to go all skydiving.
Bonehead is the only one who thinks that skydiving is dangerous and is left alone on the beach. Bonehead then goes to surf, but falls off the board and is knocked unconscious. A mystery woman saves Bonehead, and pushes him to beach. Sugar Kane sees Bonehead and runs to see what's wrong. Sugar Kane's agent sees another opportunity, and shoots some photos, saying that Sugar Kane swam after Bonehead and saved him from certain death. later that night Bonehead meets his real savior, Lorelei, a mermaid.
Back at the beach, Bonehead is entranced by the thought of meeting Lorelei, and Frankie is worried for him. Frankie then sets Bonehead up with a date with Sugar Kane in a pavilion, and makes him believe the mermaid was just a mirage. While dancing Sugar Kane notices that Bonehead is not that into the dancing, to which he suggests a walk on a beach. While going in the water something bites Sugar Kane. When Bonehead notices that bite resembling human teeth marks, he remembers his date with Lorelei, and leaves Sugar Kane on the beach.
Frankie does his first skydive, after being challenged by Steve Gordon. Bonehead has waited whole night for Lorelei, and when she finally arrives she has legs. They talk for a while and he convinced he to meet some of his friends. At the party Bonehead asks for a slow song, so Lorelei could keep up with the dancing. Rat Pack crashes the party looking for sugar Kane. Not finding her at the party, Eric Von Zipper decides to kidnap her at her home. Bonehead and Lorelei say goodbye to each other, as she thinks they can't be together, since she is immortal. Bonehead buries her clothes near the beach, which was seen by some random couple.
Bullets, Sugar Kane's agent, can't find Sugar Kane, and blames Bonehead. Frankie makes up a story that she is missing because they cooked up another publicity stunt, without the agent, and promises Sugar Kane would be found before the day is over. Lorelei sings her song, which only Bonehead can hear. And when he goes to their meeting place, he sees Lorelei's red bikini, and a name written in the sand, Von Zipper. Bonehead then goes to the bar, where Von Zipper was holding Sugar Kane. Bonehead knocks Von Zipper out, but is knocked out himself by South Dakota Slim. South Dakota Slim then takes Sugar Kane with an intent to kill her.
Frankie and Dee Dee do their freedive together, but open their parachutes too late and hit the water hard. Their pilot, Steve Gordon, even crashes his plane to get to them faster, and saves Dee Dee. While Lorelei comes and helps Frankie, revealing that Bonehead was telling the truth about mermaids. the surfers gang also reaches them, and take them to ashore. Bonehead reaches the surfers, and inform them where Sugar Kane is. The surfers then beat up the Rat Pack, but soon learn that they don't have Sugar Kane there anymore, and South Dakota Slim had taken her to a sawmill. Both the surfers and the bikers race to the sawmill, and eventually save Sugar Kane. Frankie returns Boneheads pendant he gave to Lorelei. And Bonehead then gives it to Sugar Kane, who he had started to grow feeling toward.