In Care-a-lot, a cloud-filled realm known for its motto “With All Your Heart,” the Care Bears live among rainbows and gentle adventures. One of them, Grumpy Bear link, is busy building a rainbow carousel for the upcoming Care Bear Fair, a project that draws curious friends like Funshine Bear link, who loves telling jokes and sparking laughter. When the bears reluctantly agree to try the carousel, it spirals out of control, lifting them into the sky before it crashes back down to earth. Grumpy’s mood darkens even more as Funshine tries to cheer him up with a joke about height restrictions, and the others can’t help but laugh at the moment—a reaction that leaves Grumpy feeling misunderstood. He bluntly tells Funshine that if cheering up means making fun of someone, maybe Funshine doesn’t belong in Care-A-Lot. The group decides that Funshine must mend things with an apology, forcing a painful but necessary reconciliation.
Upon returning home, they find no trace of Funshine. Tenderheart Bear link reads a note that reveals Funshine’s empathic act: he’s wandered off to a place where his talents are appreciated. Concern spreads quickly, because the fair can’t happen without him. Five bears step forward to search—Tenderheart Bear, Grumpy Bear, Wish Bear link, Cheer Bear link, and Share Bear link—while others stay behind to keep Care-a-lot ready for the big day.
The day after Funshine escapes, he hears circus music in the distance and veers off his camping path to investigate. He finds himself in Joke-a-lot, a town where humor rules everything. A plucky piglet named Gig greets him and points him toward the town square, where a fast-talking rat named Sir Funnybone arrives and proclaims Funshine the long-lost King of Joke-a-lot, though Funshine insists otherwise. The moment is a setup: Funnybone has manipulated the town to seize power for himself, briefing his henchmen—three buzzing houseflies, including Cleon link and the unseen Phido and Bidel link—on how to consolidate control.
In Joke-a-lot, seriousness is scorned, and the locals celebrate a grand “Laff-Fest” in Funshine’s honor. The tour through the Royal Palace reveals a royal vault housing the Royal Sceptre and the Royal Jewels of Joke-a-lot, protected while the King remains the only one with access. The current king is an elderly alligator known as Grand Duke Giggle link, who guards the sceptre. When the coronation approaches, Funshine’s friends retrieve his belongings and ride the same path he took, crashing into the palace and reuniting with him. Grumpy apologizes for his earlier harsh words, and Funshine faces a heart-wrenching decision: return to Care-a-lot with his friends or stay as king of Joke-a-lot, ruling a place that now feels at once dazzling and dangerous.
A chaotic Hanna-Barbera–style chain of misadventures follows as Funshine slips on a banana peel, becomes tangled in a carpet, collides with statues like a pinball, gallops through a hallway, hurtles into a clown-faced laundry chute, shoots through a colorful tunnel with screams, and finally lands on a cake in a bakery, where a troupe of weasels mock him. He eventually reunites with the Care Bears and, torn between two lives, decides to go home—only for Sir Funnybone to tempt him to stay as king.
During the climactic “Laff-Fest,” Giggle hands the sceptre to the newly crowned Funshine, and Funnybone, hungry for power, sends Phido, Cleon, and Bidel to steal it when Funshine isn’t watching. He infiltrates the Royal Treasury, unlocks the vault, and escapes with the loot on a pink dirigible, while Grumpy works to repair his carousel and the others devise a counterplan to stop the theft. The chase leads to a spectacular clash that ends with the dirigible crashing to the ground.
The truth behind Funnybone’s scheme is laid bare: his real name is Basil Ratbone, hailing from No Fun Atoll, a place where “serious” living is the norm. His goal was to enliven his people, but his deception—trying to pass off Funshine’s tummy symbol as the royal mark—crashes when the real birthmark is revealed to be the smile motif hidden behind Gig’s ears. The group opens the treasure chest to discover a jack-in-the-box and a trove of toys, revealing that the true magic lies not in jewels but in joy itself. With apologies all around, Funnybone concedes, and Joke-a-lot welcomes a new, wiser crown—with Giggle’s position upgraded into a more queen-like role as Gig becomes their Princess (though she is really more like a Queen). The Bears promise to return to Joke-a-lot someday, and they finally ride home to Care-a-lot aboard the carousel’s flying horses, thanks to the whimsical help of Twinkers.
