Some time before World War II, a Nazi archaeological expedition had found a dragon's egg and hatched it, setting about to breed more. These dragons are able to reproduce parthenogenically, with one dragon able to reproduce many times, as can each of her "daughters". The dragons themselves are controlled by Vril, Aryan witch women who are psychically connected to the dragons and can command them.
In 1942, Dr. Heinrich Gudrun (Ozman Sirgood), a Nazi cryptozoologist in charge of the dragon breeding program, code named "Skyward", arrives with his brood. The adult dragons and the vrill are intended to regain air superiority in the North African Campaign to support the Afrika Korps, under the command of Field Marshal Erwin Rommel (Robert Pike Daniel).
To combat the dragons, an American general is dispatched with orders to put together a squadron made up of the best Allied fighter pilots that are available, led by Lieutenant John Robbins (Scott Martin), the only survivor of the first fighter squadron to encounter the dragons. General Ward (Thom Rachford) forms the "Ghost Squadron", so named because it does not officially exist.
In their North American P-51 Mustangs, the squadron leads the dragons into a trap made up of numerous flak guns. The guns shoot down two while one of the pilots manages to shoot down a dragon and mark the location before he runs out of fuel and is himself killed by the dragons. Lt. Robbins and three of his buddies go to the shoot-down site to see what they can learn and are captured by German soldiers, who take them to see Field Marshal Rommel.
The Herr Feldmarschall is very dubious about the dragons. He is not only uncertain that the vrill can keep the dragons under control, but he has serious reservations about the loyalty and ultimate objectives of Dr. Gudrun. Furthermore, he has learned that once in a very long while, the parthenogenic females will lay an egg that hatches out a male dragon. These incredibly rare males are so powerful that the legends say they herald the end of the world. Rommel explains this actually means the fall of a civilization, saying that one male dragon had laid waste to the Carthaginian Empire, and another had accelerated the fall of the Roman Empire. He is afraid that a male egg is developing in Dr. Gudrun's incubator complex, hidden under a mountain.
Rommel gives Robbins the location of the incubator and explains how it can be taken out from the air. The key is that the Field Marshal has an inside man who can open an air vent that lead directly into the incubator. All the Allied pilots have to do is put a bomb down the vent, and the incubator and the eggs will be destroyed. Armed with this information, an air attack with an accompanying British SAS ground mission is planned. General Anderson (Harwood Gordon) obtains a B-17 Flying Fortress bomber from an antisubmarine squadron to handle the problem of a down-the-stack shot.
The Ghost Squadron, escorting the Fortress, keep the Nazi dragons at bay long enough for it to bomb the incubator and destroy the eggs. It turns out the "inside man" is actually a woman — one of the vrill is Dagmar (Pernille Trojgaard), a British agent. Gundrun releases Asuzaka, a gigantic male dragon but is incinerated by the dragon. During the aerial battle, only Lt. Marks (Stephen Suitts) is unscathed as each pilot rams a dragon to halt the attacking force of dragons. When it is thought that Lt. Robbins is also killed, a SAS ground party, however, locates him and bring him back to the headquarters hospital where he reunites with nurse Rachel McKee (Stephanie Beran).
With all the dragon eggs destroyed and the adult dragons killed, the war will proceed with conventional weaponry.
P-51 Dragon Fighter relied heavily on computer-generated imagery to recreate the aerial battles of P-51 Fighter aircraft and dragons. The principal photography in a North Africa landscape was based on location shooting at Blue Cloud Movie Ranch, Santa Clarita, Red Rock Canyon State Park, Cantil, and Trona Pinnacles, Ridgecrest, California.
In his review of P-51 Dragon Fighter, film critic Martin Hafer notes: "The bottom line is that P-51 is indeed a bad movie — and this should come as no surprise to anyone (except, perhaps, the folks who made the film). It does have some decent production values and might be of interest to the really undemanding and possibly demented film buff. My only worry is that if the film manages to somehow make money that we’ll see even weirder mash-ups. What’s next —'Cavemen with Nukes', 'Jesus and Gandhi Versus Hitler' or perhaps 'The Obaminator' – where we learn that our president is a robot sent from the future to wipe out mankind?!"