Babe, an orphaned piglet, finds himself unexpectedly chosen for a "guess the weight" contest at a local county fair. The victorious farmer, Arthur Hoggett, makes the decision to bring Babe home to live with a Border Collie named Fly, her partner Rex, and their lively puppies in the warm comfort of the barn.
In his new life, Babe encounters a clever duck named Ferdinand, who strives each morning to be regarded as useful rather than face the fate of being a meal. Ferdinand persuades Babe to help him sabotage the alarm clock that endangers his ambitions. Their plan works, but the ensuing chaos awakens Duchess, the Hoggetts' cat, leading to a mishap that results in the destruction of the living room. During a barn meeting, Rex firmly warns Babe to steer clear of Ferdinand, who is now on the run.
As Christmas rolls around, Babe's fate hangs in the balance when the Hoggett family arrives for the holiday. Initially, Babe is a contender for Christmas dinner, but when Hoggett mentions that Babe may bring home a prize ham next county fair, a duck gets selected instead. On Christmas Day, Babe finds a purpose for his existence when he alerts Hoggett to sheep rustlers in the fields. Impressed by Babe's ability to sort hens by color the following day, Hoggett tests his herding skills with sheep. With encouragement from an elder ewe named Maa, the sheep respond positively, but Rex perceives this as an affront to sheepdogs and confronts Fly, leading to a fierce fight.
The confrontation results in injuries for both Fly and Hoggett. With Rex being restrained and sedated, Babe is left responsible for herding the sheep. One morning, upon hearing distress from the sheep, Babe discovers three dogs attacking them. Although he successfully drives them away, the aftermath leaves Maa mortally wounded. When Hoggett arrives, believing Babe to be the cause of Maa's demise, he prepares to shoot him. However, Fly, worried about Babe's fate, converses with the sheep instead of directing them, uncovering the real truth. She intervenes just in time, suggesting the police may know that feral dogs are responsible for the sheep killings.
With Esme away on a trip, Hoggett takes a leap of faith and enters Babe into a sheep-herding competition. Bad weather forces Hoggett to let Babe and Fly into the house that night, but when Duchess scratches him, Hoggett promptly banishes her outside. Later, when Duchess reveals to Babe that humans do eat pigs, a wave of horror washes over him. He rushes to the barn to confirm this startling revelation with Fly. The next day, however, Babe is nowhere to be found, prompting Fly and Rex to alert Hoggett to his absence. Rex ultimately locates Babe in a cemetery, and Hoggett brings him home. Despite this, Babe remains despondent and refuses to eat, until Hoggett offers him a drink from a baby bottle while singing "If I Had Words" and dancing a jig to uplift his spirits. This loving gesture rekindles Babe's belief in Hoggett's affection.
At the competition, Babe meets his sheep for the first time but struggles to gain their attention. Criticism mounts against Hoggett for entering a pig instead of a dog while Rex races back to the farm to consult the sheep for guidance. They share a secret password with him, and he promises to treat them better. Rex rushes back to relay this essential information to Babe, who then successfully commands the sheep, impressing the crowd with his abilities. After a triumphant performance, Babe is awarded the highest honor, basking in the praise of Arthur Hoggett, who affectionately concludes with the words, > "That'll do, Pig. That'll do."
