Hugo steals the mechanical mouse from the old man’s toy booth and gets caught—and gets his notebook with the drawings of the automaton taken away by the old man.
The automaton is important to Hugo and he needs to get the notebook back because his father was working on fixing it before he died.
So Hugo goes back to the toy booth, but the old man hands him ashes and tells him the notebook has been burned. The girl who is with the old man tells Hugo (in secret) to meet her at the bookstore, and that she doesn’t think it’s been burned at all.
Hugo befriends Isabelle, and starts working at the old man's toy booth in the hopes that he'll give Hugo back his notebook.
In a chance encounter, Hugo discovers that Isabelle's key necklace looks like it might fit into the back of the automaton he's been trying to fix. So he steals it.
Though Isabelle bursts in and accuses him of stealing, Hugo manages to turn the key in the automaton's back. They both watch as the toy draws a picture and signs it Georges Méliès.
What could this mean? With a little digging, Hugo discovers that Papa Georges was once a famous filmmaker.
Eventually, with a little coaxing, Papa Georges tells Hugo and everyone else his story. And then he asks Hugo to go get the automaton for him, because he made it.
Unfortunately, on his way to retrieve it, Hugo has a run-in with the Station Inspector, which ends with him falling onto some train tracks.
Papa Georges saves Hugo, and takes in the boy as a new member of the family.