First off, it is not a musical. #1 problem with the first movie solved.
Dorothy still lives on a farm in Kansas with her Uncle Henry and Aunt Em and loves her dog Toto, which she has had since before her parents died in a plane crash. The first scene of this version is the funeral of Dorothy's parents and Henry and Em taking her home. Dorothy in this version is kind of like Daria from the MTV (Beavis and Butt-Head spinoff) cartoon show. She is smart, quiet, sarcastic at times and a little morbid because of what happened to her parents. She hates the ditzy cheerleader girls at her school and drowns them out with punk rock on her headphones or by reading a book. Her favorite album is 'Dark Side of the Moon' by Pink Floyd, which provides much of the soundtrack for this film. Dorothy finds living on a farm boring and misses the city life that she had with her parents.
There is a tornado. Dorothy ends up in Oz. Her house lands on the Wicked Witch of the East. The Munchkins, instead of being colorfully-dressed singers and dancers with Oompa Loompa hair, are ghetto-dwelling warriors who have been fighting the witch's oppression in their city for decades. They are first skeptical of Dorothy ("Is she a good witch or a bad witch?"). They threaten her with spears and take her to Munchkin Town Hall for interrogation. At this point, the Wicked Witch of the West tries to take back her sister's ruby slippers and gets into a fireball-hurling (Dragonball/Street Fighter-style) battle sequence with Glenda, the good witch of the North. Glenda kills two of her flying monkey bodyguards and scares the Wicked Witch away. She gives the ruby slippers to Dorothy after convincing the cynical Munchkins that she is no threat to them and tells her about the Wizard of Oz, who is a runs a religious commune called the Emerald City. Like the original, the people that Dorothy meets in Oz are 'elseworlds' versions of people she met back home in Kansas.
Remember that myth about the actor who played one of the Munchkins hanging himself while on the set and people claim that you can see him in the background of the movie? Well, a reference is made to the Munchkin Prime Minister hanging himself and Dorothy sees him later in the film, somewhere between meeting the Tin Man and the Cowardly Lion.
Dorothy meets the Scarecrow and finds him annoying. She doesn't want him following her around. Then, the Scarecrow earns her trust by protecting her from the first attack by the flying monkeys and by comforting her after Toto falls off of a very high bridge (seemingly to his death) over a very polluted river. Dorothy tells him about the Wizard and lets the Scarecrow tag along so that he can get himself a brain.
Meanwhile, Toto climbs out of the polluted river and starts to mutate into a humanoid version of his former canine self. He looks around and sees some very scary woods with talking trees and creepy sounds. He is scared at first and is introduced to a woman who appears in a magical bubble similar to the one Glenda appeared in. This is the Good Witch of the South (who you never see in the original film).
She meets the Tin Man and Scarecrow convinces him to come along. Seeing the 'hung' dead body of the Munchkin Prime Minister is the first sign (to the audience) that they are in the creepy part of the woods that Toto ended up in. ("Werewolves and zombies and ghouls! oh my!") As they trek through the creepy woods, they meet the Cowardly Lion and mutated Toto shows up to protect Dorothy, barking and baring his claws. The Cowardly Lion goes down with one slap and starts crying like a girl as Toto, who can now speak, tries to convince Dorothy that he is Toto. Eventually, the Lion apologizes for his behavior and they let him join their trek.
They finally get to the Emerald City, which (they are told) is a place where people in Oz come for peace from the evil that consumes their land. Of course, this is largely because of the poppy (opium) fields on the outskirts of the city that they work/indulge in. They recieve an audience with the Wizard of Oz. They make their requests and the Wizard tells them that he will not help them until they bring him the broomstick of the Wicked Witch of the West. He convinces her that she has the power as long as she wears the ruby slippers. They leave, dejected, and as they are walking away from the Emerald City, flying monkeys attack again. They fire flaming arrows that light up the poppy fields outside of the city (the Emerald City's primary source of income...and peace), Dorothy inhales the smoke and drifts off to sleep as the Scarecrow is carried away.
Dorothy wakes up in a dungeon and is held captive by a witch (who claims to be a good witch) that refuses to release Dorothy until she proves herself worthy of the ruby slippers that she wears. She cannot take them off. The Good Witch of the South teaches Dorothy how to fight, using the ruby slippers to increase her speed.
The Scarecrow is tortured in the witch's castle by the Wicked Witch of the West and her monkeys by being torn apart and being stuffed again in a sloppy fashion. The Scarecrow eventually figures out how to escape, showing that he had a brain after all, but he is still trapped in a different part of the castle.
By the time that Dorothy emerges from the dungeon as a master swordsman, she realizes that the rest of her team has been training too, under the tutelage of the Good Witch of the South, who believed Dorothy to be the only one who could free Oz from both Wicked Witches (since she ended up with the slippers). Toto has been teaching the Lion how to fight. The Tin Man's tin body has been souped up into a Iron Man/Transformers-style battle robot that has missiles and machine guns and can transform into a vehicle. She also learns that Toto was the one who had led them into that poppy field so that the Good Witch could bring them here for training. He had been in on the plan ever since he had mutated in the river. The Good Witch had asked the Tin Man to lead the attack, but he shows his "heart" by saying that he doesn't know what he would do if he lost his new friends and would feel better just protecting them.
Then, the team rides the Tin Man's new rocket vehicle mode and speed through the scary woods to the witch's castle. The Tin Man kicks the doors open and starts spraying guards ("Ohh-eee-ohhh!") and flying monkeys all over the nearest castle wall with his weapons. Dorothy also kills her fair share of flying monkeys with her samurai sword as the Lion and Toto do likewise with their animal instincts and (newfound) courage. They rescue the Scarecrow. When the witch's castle goes into lockdown and mechanical gates are blocking their way, the (brainy?) Scarecrow rewires them so they can get out of the castle alive.
The witch is now flying above her castle on her broom stick. Dorothy asks Toto to throw her. He is hesitant, because they have known each other for so long. The Lion shouts "She's getting away' and tosses Dorothy at the flying witch. Dorothy hangs from the broomstick and throws off the witch's flight pattern. The broomstick crashes in the scary woods and the climactic sword fight begins. The Wicked Witch pops a blade out of her broomstick and battles Dorothy.
Dorothy and the Witch jump from one tree to another as they fight, Crouching Tiger, Hidden Dragon-style. The fight ends with the witch falling into the water. As she emerges from the water (which we previously established was toxic), smoke pours from her face and she screams "I'm melting!" and she melts into a puddle of bubbly goo. By the time this happens, the Tin Man, Scarecrow, Lion and Toto reunite with her. They take the broomstick back to the Wizard.
The Wizard thanks them for their bravery, but asks them to come back in a week for their requests to be granted. Dorothy is angry. When she realized that there is a "man behind the curtain", she yanks him out and holds her sword to his neck, threatening him. He begs for his life and explains that he only wanted to bring peace to his land. Glenda appears and calms Dorothy down after pulling the sword out of her hand. Glenda explains that the Scarecrow used his brain to escape from the castle and that the Tin Man showed heart during the assault and that it took alot of courage for the Lion to do what he did. She explains that the slippers also have the power to bring her home. She clicks her heels together three times and says "there's no place like home."
The next thing Dorothy sees is men with gas masks standing over her. They pull her out of what remained of her Kansas home after the tornado. During the tornado, Dorothy's house had landed in another field and there was a terrible gas leak that she had been breathing in for hours and hours. Dorothy is taken to the hospital. It is explained to her aunt and uncle that she should be fine, but they would need to keep her overnight because she is still hallucinating.
Dorothy's new hallucinations flow into some trippy closing credits to the beat of 'Dark Side of the Moon' by Pink Floyd.