Stuart "Stu" Miley, a jaded cartoonist, finds himself in a peculiar situation as his comic creation, a mischievous monkey named Monkeybone, is set to launch an animated series with merchandise, much to the delight of his persistent agent and friend, Herb. Excitedly planning to propose to his girlfriend, Julie McElroy, a compassionate sleep institute employee, Stu is suddenly thrust into chaos when he falls into a coma after a car accident.
In this state, his essence is transported to Down Town, an eccentric, carnival-like limbo overflowing with mythological creatures and the whimsical manifestations of its guests' subconscious. Here, he continually clashing with Monkeybone, the duo soon learns that to escape this strange realm, they must secure Exit Passes.
Invited to a pajama party by Hypnos, the deity of Sleep ruling Down Town, the stakes are raised when it’s revealed that in order to return to the living, Stu must pilfer an Exit Pass from his sibling, Death. Guided by Hypnos, he and Monkeybone embark on a frantic trip to the Land of Death, donning disguises to pull off their heist. Their escapade is further complicated by Julie's desperate measures to awaken Stu using a potent chemical concoction named "Oneirix," which induces nightmares.
Once back in Down Town with an Exit Pass, treachery ensues as Monkeybone snatches it away for his own ambitions. It turns out that Hypnos has conjured a devious plan wherein Monkeybone would spread Oneirix in exchange for his corporeal existence. As nightmares begin to unfold, Monkeybone, under Hypnos's orders, goes on to deploy Oneirix in a series of ridiculous pranks, inadvertently putting those around them at risk, including Stu's bewildered friend.
With the clock ticking, Stu, aided by a charming waitress named Miss Kitty, manages to escape and implores Death to assist him in returning to the living world to thwart Monkeybone’s sinister agenda. Complying with his request, Death provides him a limited window to enact change, thrusting him into the body of an organ donor.
Reuniting with Julie at a charity banquet, tensions escalate when Monkeybone attempts to pop the question, oblivious to the chaos brewing around him. Completed by a frantic escape to thwart the havoc Monkeybone wrought, Stu confesses his feelings to Julie. The ensuing battle between the two culminates in an epic confrontation atop a giant Monkeybone balloon, which crashes down, sending them both tumbling back to Down Town.
In the spectacle below, onlookers cheer as the fight unfolds, ultimately leading to a confrontation with Death, who ensures that Monkeybone returns to the recesses of Stu's mind, reinstating order before sending Stu back to his life. Upon awakening, a joyful reunion with Julie follows, while Herb—unfortunately still under the influence of Oneirix—causes uproar by urging others to strip naked, creating a humorous yet chaotic conclusion.
In an alternate ending, their kiss is mirrored with Death pursuing Hypnos in her gargantuan robot, as she prepares to deliver him to justice, witnessing the whimsical landscape of Down Town gradually fade into slumber.
