After an enchanting introduction by Mother Goose and her pet goose Sylvester, the audience is transported to the whimsical Mother Goose Village, home to a plethora of beloved nursery rhyme characters. The village is abuzz with excitement as preparations are underway for the upcoming wedding between Mary Quite Contrary (Annette Funicello) and Tom Piper (Tommy Sands). However, lurking above the village in a crooked house is the nefarious landlord, Barnaby. Aware that Mary's marriage will grant her a fortune, Barnaby concocts a dastardly plan to marry her himself.
To execute his scheme, he enlists the help of two dimwitted henchmen, Gonzorgo and Rodrigo, with the wicked intent of kidnapping Tom and tossing him into the sea. The situation grows dire as they also plan to abduct the flock of sheep cared for by Little Bo Peep (who resides with Mary, alongside Little Boy Blue, Wee Willie Winkie, and two twin girls) since those sheep are crucial for their livelihood.
One evening, as Tom leaves Mary, the thugs ambush him, binding him in a sack. However, when they chance upon a fork in the road that hints at a nearby gypsy camp, Gonzorgo devises a cunning plan to sell Tom to the gypsies and deceive Barnaby into believing they've completed their task.
The following day, Barnaby interrupts Mary's wedding plans, only for the moment to be tarnished by the arrival of two shipwrecked sailors, who are in fact Gonzorgo and Rodrigo in disguise. They spin a woeful tale, claiming that Tom abandoned Mary to avoid the shame of being unable to provide for her and the children under her care. They even produce a "note" allegedly from Tom, suggesting she should marry Barnaby instead.
Dismayed by this revelation, Mary staunchly rebuffs Barnaby's advances, asserting, “I could never marry just for money alone.” Maintaining her optimism, she comforts herself with the thought that Bo Peep's sheep will ensure their survival. Unfortunately, just then, Bo Peep arrives, exclaiming she has lost the sheep! The townsfolk rally to help, but when they hear that the sheep may have wandered into the Forest of No Return, everyone swiftly withdraws their offers.
Determined not to let their beloved Mary face despair alone, the children brave the forest in search of the sheep, spurred by their desire to keep her happy. In the meantime, Gonzorgo and Rodrigo mischievously spread the rumor that Mary has agreed to marry Barnaby. Barnaby, giddy that his evil plans seem to be unfolding, organizes a festive performance by a band of gypsies, filling the village with lively music.
As events reach a crescendo, a mysterious fortune teller makes her entrance, only for it to be revealed that she is indeed Tom in disguise! Evidently, Barnaby had hired the same gypsies who previously captured Tom. Not surprisingly, Barnaby is furious upon realizing he has been outsmarted.
Meanwhile, back at Mary's residence, a note left by the children indicates their expedition into the Forest of No Return. In the depths of the forest, the children find themselves ensnared by a chorus of singing trees. Just when things seem bleak, Mary and Tom arrive to save the day, silencing the trees and bringing relief to the children. However, the adults mistakenly believe the children are merely indulging in fantasy play. As darkness descends, they all settle down to rest within the woods.
At dawn, the trees awaken them, informing them that they will escort the group to the Toymaker's domain, located on the outskirts of Toyland. This exhilarating revelation ignites the children's imagination as they rush to the Toymaker’s workshop. There, they witness the Toymaker and his assistant Grumio, tirelessly working to boost toy production for the holidays. Grumio unveils a contraption designed to enhance productivity; yet, when the Toymaker pushes it to maximum capacity, disaster strikes, leading to a chaotic malfunction and an avalanche of blame directed at Grumio.
Later, Tom, Mary, and the children volunteer to assist the Toymaker, who gradually warms to their industrious spirit. But just as the night draws in, Grumio bursts into the room wielding a unique gun filled with a red liquid, revealing that it can shrink objects. However, a warning accompanies this revelation: two puffs will lead to disintegration!
While the Toymaker initially finds the invention promising, Tom quickly highlights its flaws, prompting the Toymaker to dismiss it. This act inadvertently places the weapon into Barnaby's hands, who overhears everything and promptly uses it to shrink the Toymaker, as well as Gonzorgo and Rodrigo when they attempt to abandon him. He then turns the device on Tom, compelling Mary to marry him under the threat of disintegrating Tom unless the union proceeds.
A reluctant wedding ceremony is set to unfold, with the Toymaker presiding over the event. However, as the gathering commences, Tom quietly slips away, rushing to the workshop to liberate a battalion of toy soldiers. Together, they stage a valiant charge against Barnaby, who nearly gains the upper hand until the vial containing the red liquid inadvertently shatters, causing Barnaby himself to shrink in size.
In the aftermath, Grumio emerges once again, this time armed with a green antidote that successfully restores the Toymaker, Gonzorgo, Rodrigo, and Tom to their original sizes. The reunited villagers then return home, culminating in the joyous wedding of Tom and Mary. As they ride away in a horse-driven sleigh, their friends bid them farewell, signaling a happy ending for all.
