At school the next day, Elliott begins to experience his empathic connection with the alien much more strongly, including exhibiting signs of intoxication (because the alien is at his home, drinking beer and watching television), and he begins freeing all the frogs in his biology class. As the alien watches John Wayne kiss Maureen O'Hara in The Quiet Man on television, Elliott kisses a girl he likes in the same manner, and is sent to the principal's office.
The alien learns to speak English by repeating what Gertie says as she watches Sesame Street and, at Elliott's urging, dubs himself "E.T." E.T. reads a comic strip where Buck Rogers, stranded, calls for help by building a makeshift communication device and is inspired to try it himself. E.T. receives Elliott's help in building a device to "phone home" by using a Speak & Spell toy. Michael notices that E.T.'s health is declining and that Elliott is referring to himself as "we".
At Halloween, Michael and Elliott dress E.T. as a ghost so they can sneak him out of the house. That night, Elliott and E.T. head through the forest, where they make a successful call home. The next day, Elliott wakes up in the field, only to find E.T. gone. Elliott returns home to his worried family. Michael searches for and finds E.T. dying next to a culvert. Michael takes E.T. home to Elliott, who is also dying. Mary becomes horrified when she discovers her son's illness and the dying alien, just as a group of government agents dressed in astronaut suits led by "Keys" invades the house.
Scientists set up a hospital at the house, asking Michael, Mary, and Gertie if they have met E.T. While the scientists are treating Elliott and E.T., the mental connection between the two disappears, and E.T. appears to die while Elliott recovers. Elliott is carried away, shouting that the doctors are killing E.T. as they try to revive him. When the scientists reluctantly pronounce E.T. dead, Michael discovers that the chrysanthemum plant that E.T. previously revived appears to be dying again.
As Elliott recovers, the scientists first bring him back to Mary, Michael and Gertie but then Keys leaves him alone with the motionless E.T. Elliott says a tearful goodbye, telling E.T. that he loves him before closing the case in which E.T. is to be taken away. E.T.'s heartlight begins to glow, and Elliott notices the dead chrysanthemum plant is once again coming back to life and opens the case. E.T. reanimates and tells Elliott that his people are returning. Elliott and Michael steal the van that E.T. had been loaded into and a chase ensues, with Michael's friends joining them on bicycles as they attempt to evade the authorities. Suddenly facing a police roadblock, E.T. helps them escape by using his telekinesis to lift them into the air and towards the forest, like he had done for Elliott before. Standing near the spaceship, E.T.'s heart glows as he prepares to return home. Mary, Gertie, and Keys show up. E.T. says goodbye to Michael and Gertie, as she presents him with the chrysanthemum that he had revived. Before boarding the spaceship, he embraces Elliott and tells him "I'll be right here", pointing his glowing finger to Elliott's forehead. He picks up the chrysanthemum and boards the spaceship. As the others watch it take off, the spaceship leaves a rainbow in the sky.