A pow wow opening features a medicine man tossing a knife and tomahawk at a young brave warrior to test his faith in the Great Spirit and true courage. He also shoots an arrow at him to test his purity of heart. Jim Varney reprises his role of Ernest P. Worrell, working as a maintenance man at Kamp Kikakee and hoping to become a counselor. With his typical enthusiasm, he pours himself into the role and quickly becomes a valuable addition to the staff, in particular for his passion at learning the sign language used by Kikakee's owner, Chief St. Cloud (Iron Eyes Cody), who does not speak English.
Ernest gets his chance at counseling when he is assigned a small group of juvenile delinquents from Midstate Boys Detention Center that the regular counselors are hesitant to take on—primarily because the group hospitalized their first counselor, Ross Stennis (Eddy Schumacher), by pushing his lifeguard chair into the lake while he was sitting in it which caused him to break his leg. Ernest quickly takes the side of the boys, due to his compassion and for having suffered his own abuse at the hands of the militant Counselor Stennis. However, the boys start to show a little respect during a campfire session when Nurse St. Cloud (Victoria Racimo) translates her grandfather's description of the warrior initiation ritual for his tribe. The initiate must hold still while a knife, a stone hatchet, and an arrow are thrown or shot at the target. It is implied that the courage of the young warrior actually alters the course of all three to prevent his death. They build a tepee and wish to display it, only to find it burned. The Second Chancers discover that one of the regular campers is responsible, and a fight ensues. Counselor Stennis uses the fight as excuse to get the Second Chancers expelled, but Ernest wants the full story, especially after pointing out the ruined project.
Meanwhile, an evil mining corporation run by the ruthless Sherman Krader (John Vernon) has its sights on Kikakee, a site rich with the fictional mineral petrocite. However, Chief St. Cloud refuses to sell. Krader manipulates Ernest, one of the few people who speaks the chief's language, into convincing St. Cloud to sign away the land, believing it to be a conservation petition. Using Ernest as an interpreter, St. Cloud signs the deed away. Nurse St. Cloud tries to talk Ernest out of doing anything rash until she can get a lawyer. She firmly believes that they can win the case if they can get to court, but Ernest objects, knowing that by the time they can get to a hearing, Krader will already be tearing down the camp for a strip mine.
Ernest decides to fix the situation by storming into the construction site and picking a fight with the foreman (Lyle Alzado), though he mainly chooses to do this out of a sense of guilt for his mistake and the risk of disappointing the kids. Ernest is savagely beaten; he leaves the camp for a while to be alone. When Nurse St. Cloud overhears the kids verbally demeaning Ernest's effort, she chastises them and reveals that Ernest is the only person who has defended them, both to the authorities and to the camp staff, mostly because he was the only one who really cared about them. When they learn about the sacrifices that Ernest has made on their behalf, they resolve to find him and apologize.
Krader is poised to demolish Kikakee, and when the regular staff and campers are sent home, the group decides to risk openly attacking the construction site to stall for time. Recruiting the Second Chancers and the chefs Jake and Eddie, Ernest plans a full-scale assault as the construction company begins to demolish Kikakee.
The group works feverishly to create a series of improvised, non-lethal weapons. Prior to the attack, Chief St. Cloud arrives to pass along a native blessing, though Nurse St. Cloud begs them not to go through with it, warning that legal representation is needed. The assault quickly cripples the construction site's equipment. The campers take small revenge against the foreman by filling the back of Ernest's motorized maintenance cart with explosives (including Jake and Eddie's Eggs Erroneous) and rolling it into the bulldozer. Ernest then knocks out the foreman.
Krader, along with his lawyer, arrives. Angered at the sabotage, he pulls out his high-powered hunting rifle, targeting Ernest. Echoing Kikakee's ancient testimonial pow wow, Ernest faces down Krader and apparently passes the age old test as Krader takes three shots at him, missing every time. Ernest then plugs Krader's hunting rifle with his finger and laughs in his face, signaling his defeat. Nurse St. Cloud returns with an injunction, while Krader's lawyer remarks that Krader has outdone himself.
Some time later, Kamp Kikakee is operational with all campers and a full staff again. Nurse St. Cloud thanks Ernest for all he has done, and reveals Krader was arrested for fraud. Chief St. Cloud now seems to understand English, and Ernest is a full-fledged counselor. When trying to rebuild the Kamp Kikakee sign, Ernest (in his usual way) falls.
Ernest Goes to Camp was the best received of the franchise, earning a 62% "fresh" rating on Rotten Tomatoes, indicating a mixed to positive response. However, Varney was nominated for a Golden Raspberry Award as Worst New Star.
The film was a box office success.
The songs were written by Alice and Shane Keister.Ashley Cleveland sang "We're Gonna Win this One" while the boy campers are building their teepee.
Gary Chapman sang "Brave Hearts" during the film and in the credits.
Ernest sang "Gee I'm Glad It's Raining" when he and other campers are sad about the camp's closing.
The song used when Ernest sends box turtles by parachute on Krader's men is "Happy Together," a song which was written and recorded by the musical group The Turtles. It also serves as a theme song of the film.
This film's first DVD release was on September 3, 2002, from Walt Disney Studios Home Entertainment. Mill Creek Entertainment re-released it on January 18, 2011, as part of the two-disc set Ernest Triple Feature along with Ernest Goes to Jail and Ernest Scared Stupid. They also released the film for the first time on Blu-ray on March 29, 2011, in a single disc Double Feature set along with Ernest Goes to Jail, and later on its own Blu-ray on June 13, 2011. A second Blu-ray double feature with Camp Nowhere was released on March 26, 2013.