This episode is based on the events in Amazing Spider-Man #66 and 67.
After months of waiting and planning Mysterio returns with a new plan to defeat Spider-Man .. and a new look as well. He has decided to forgo the fishbowl-headed costume and is now dressed like an evil college professor - with green skin and red hair. He decides to announce his return to an unsuspecting New York.
In the city Peter Parker stands on a sidewalk. He wonders out loud if Jonah has any new assignments for him. No news means no pictures which means no cash. [Talking to yourself in public means your internal monologue is broken, Rainman]
Mysterio appears on the same street in a puff of purple smoke. He walks down the street, literally shoving Peter to the side, unaware that his enemy was actually within reach. Peter recognizes him immediately [Even though he looks completely different than last time], but can't react due to the large crowd. Just as suddenly Mysterio vanishes.
Peter returns to the Daily Bugle. Jameson is watching a televised ultimatum from Mysterio. He's calling out Spider-Man, demanding they meet at the location of their first battle.
Peter changes to Spider-Man and returns to the television studio Mysterio indicated. Mysterio shows him a table-top model of an amusement park and exposes him to a bright light that knocks him out. When he regains consciousness, Spider-Man finds himself inside the model of the amusement park model and only six inches in height. Mysterio remains his normal height.
Mysterio then forces him to run through his murder park. All the while something in the back of Spider-Man's mind is saying that this isn't right. He eventually realizes that this is all an illusion; he's not really small.
Spider-Man makes his way to the parachute jump ride (the only vantage point in the park) and finds Mysterio at the controls of the "carnival of death". Spider-Man webs him up and leaves him for the police.
With only four episodes remaining, I'll go ahead and spoil this. There aren't any more stories borrowed from the comics.
4 webs. A few minor issues aside, this is a good episode from the series. The reason is very obvious.
Left to their own devices, they take Spider-Man into situations that make no sense for the character. These episodes are very strange and rely on stock footage that makes a bad idea even worse.
In every case, when they borrow stories from the comics, the episode is much better than their original ideas.