For a wizard to retire, he must go through an "eggnancy" and hatch his apprentice from an egg and train him for fifty years. However, Leonard Powers, the Wizard of Social Services, abandoned his apprentice, the Harry Potter-like Lionel Chang, in a restaurant in Chinatown and only looks him up to take him to Mt. Magic for the New Wizard Initiation Ceremony. Lionel becomes distressed at how Leonard treated him.
Meanwhile, the demons plan to attack Mt. Magic, as the wizards are a force for good and therefore their enemies. A force field around Mt. Magic prevents them from making their final attack.
In the Department of Integration, Callie Maggotbone overhears Leonard's hologram, Melchior, tell Mark Lilly that Leonard is at Mt. Magic. In response, Twayne Boneraper lies about holding a summer camp at the silver mine below Mt. Magic and appoints Mark as the camp's head counselor to get him to go with the demons. Randall Skeffington offers to drive Mark, his students, and Francis Grimes there. The demons hurry to set up a summer camp at the abandoned silver mine. Grimes thinks the silver mine is contaminated and escapes to the forest, but ends up joining with some feral bears.
Mark assigns his students and Callie as the camp's counselors. When Callie ignores him and goes away, Mark leaves Randall in charge and follows Callie to a lake below the mountain. Lionel spots Callie swimming in the lake and becomes attracted to her. Mark spots Leonard up above on Mt. Magic's fortress and asks him to sign a census report, which Leonard must do before he can retire. Leonard tells Mark to go to the fortress' secret entrance, which the demons overhear.
In the meantime, Randall makes Mark's students mine for silver. They get trapped underground when the entrance collapses. Randall decides to eat one of the students and Doug, a panda bear, digs a tunnel to escape.
The demons commence their attack get inside the fortress through the secret entrance. The wizards fail to form a defensive "ring of power" since Lionel has escaped, as he does not want to get circumcised during the ceremony which must be held on the summer solstice. He heads to the summer camp in order to see Callie. The confrontation between the wizards and demons leads to calamitous fight.
At the same time, Grimes and the bears also arrive at the fortress. The bears, in search of food before hibernation, maul Leonard. In response, the demons renew their attack on the wizards, but Doug's emergence from his escape tunnel damages the fortress structure, and the floor collapses beneath the demons and the bears. The wizards emerge victorious. Mark brings Lionel back to the fortress, but the summer solstice has already ended. As a result, Leonard must go through another "eggnancy" before he can retire.
At the end of the episode, Lionel is seen back in the Chinese restaurant washing dishes again.
"Wet Hot Demonic Summer" was written by Daniel Powell and directed by Aaron Augenblick. Series creator Devin Clark said that they planned on giving it a summer theme since they knew it would air in the summer. Clark further elaborated on the decision to incorporate summer and Harry Potter themes into the episode, stating: "We went, 'alright, those are two little nuggets of ideas we can incorporate into that.' We can't be as relevant to pop culture as some other shows, but it just means we have a little more of a challenge of making jokes that are a little more evergreen and poking fun of the genre in a much broader spectrum." Screenwriter Powell explained that it is difficult for the series to do "topical stuff" as it takes up to nine months to complete an episode, but they were aware of the fact that the Harry Potter and the Deathly Hallows – Part 2 would premiere shortly after the episode was set to air. "So it would seem like we were hyper-topical, even though we had a good nine months advance notice", he said. Powell said that they included famous wizards from many other sources, including The Lord of the Rings and The Wonderful Wizard of Oz. In an interview with Charles Webb of MTV, Clark elaborated:
[In our season premiere] there are a number of thinly-veiled references to a certain child wizard franchise that might or might not be ending its theatrical run this summer. But we also use that world of wizardry to have a lot of references to other wizards—you've got The Wizard of Oz, The Lord of the Rings and things like that. We make it a hodgepodge of the wizard references and obviously the main one is, and the most prominent one and the one that’s most relevant to pop culture is the Harry Potter spoof that we've thrown in there.
The episode explores Leonard's background and that he is "essentially a deadbeat dad". In an interview with Matt Barone of the magazine Complex, Powell revealed that he was inspired to write the episode after reading a critic's review which referred to Leonard as "basically [having] omnipotence" as he is able to conjure any magic he wants, but is too lazy to take advantage of his powers. The review spurred an idea for an episode where Leonard would be responsible for dealing with a kid. Powell called the episode's mythology "very bizarre and surreal", but said that they tried to keep the core themes relatable, such as Leonard's relationship with his estranged son. The same day as the episode's original broadcast, a deleted scene from "Wet Hot Demonic Summer" was made available on the official Ugly Americans website. In the half-minute clip, Grimes is shown settling into living his life as a bear.
The episode originally aired on Comedy Central in the United States on June 30, 2011, following the Futurama episode "Ghost in the Machines". According to Nielsen Media Research, "Wet Hot Demonic Summer" was watched by 1.14 million viewers, compared to the 1.92 million who watched Futurama. The episode also acquired a 0.5 rating among viewers between the ages of 18 and 49. This means that 0.5% of all 18–49 year olds viewed the episode. It dropped in viewership compared to the series' pilot episode, which attracted 2.10 million viewers and acquired a 1.1 rating. "Wet Demonic Summer" also marked a drop in ratings compared to the first season finale, "The ManBirds", which received a 0.7 rating.
"Wet Hot Demonic Summer" received generally positive reviews from critics. David Hinckley of New York Daily News rated it four out of five stars and commented that although it may not make sense to some viewers, it is "equally possible they will keep watching anyway because the jokes work so well all by themselves". Hinckley went on to remark that "Ugly Americans packs a lot into 21 or 22 minutes. Happily, its often droll and deadpan style makes it easy to watch even if some of the references are whizzing by unappreciated". RedEye critic Curt Wagner rated it three stars out of four and wrote that that it includes "visual pizzazz", cultural references and "so-fast-you'll-miss-them jokes" that it might require multiple viewings. Wagner, however, meant that this was a rather positive feature, writing: "For example, you might be laughing so hard at what just happened that you miss a fun line..." Lastly, Wagner observed that "Ugly Americans can be gross and bizarre, but everything makes sense in the world that it has created".
Josh Harrison of Ology deemed the episode a "good sign" that the second season will be "just as good, if not better" than the first season. He said, "The way it all works together in this episode ... is subtle and surprising but nevertheless convincing evidence that there's method to the madness. Ugly Americans knows when to play this card; at all other junctures, it's got the right instinct when it shows us yet more madness." Harrison praised the battle scene between the wizards and the demons, calling it "one of the best single sequences in the series so far". In contrast, The Standard-Times critic Kevin McDonough was more critical regarding the episode, noting that it "tries a tad too hard". McDonough commented: "The efforts to meld 1980s summer-camp fantasy comedies with the Harry Potter movies are more odd than amusing. Then again, that pretty much sums up Ugly Americans itself."
- Leonard kidnaps his son Lionel in a similar fashion to Death Eaters kidnapping Harry Potter with Leonard being in a similar disguise to Voldemort.