Shrek and Princess Fiona find themselves in a tough position as they prepare to take over from King Harold. However, Shrek's attempts to act as the Regent during Harold's medical leave turn disastrous, revealing his complete lack of interest in ruling over Far Far Away. In a moment of urgency, Harold, on his deathbed, informs Shrek about an unexpected heir: his nephew Arthur "Artie" Pendragon, who happens to be Fiona's cousin.
Simultaneously, Prince Charming seeks revenge for his mother, the Fairy Godmother's, demise. Determined to claim the throne, he gathers the fairy tale villains at the Poison Apple tavern, persuading them to fight for their "happily ever after" and to assist him in his quest for power.
Shrek, along with his loyal friends, Donkey and Puss in Boots, embarks on a mission to locate Artie. As they set sail, Fiona reveals she is pregnant, leaving Shrek in a state of panic as he believes he is ill-equipped for parenthood. The trio arrives at Worcestershire Academy, an elite magical school, where they encounter Artie—an awkward, 16-year-old outcast. During a pep rally, Shrek informs Artie about his potential to become king, sparking excitement in him. However, this enthusiasm quickly wanes when Donkey and Puss unintentionally scare him with tales of royal responsibilities. Overwhelmed, Artie attempts to steer the ship back, ultimately resulting in a crash landing on a deserted island where they meet his retired magic teacher, Merlin, who encourages them to connect.
While Fiona and Queen Lillian throw a baby shower, Charming and the villainous crew launch a surprise attack on the castle. Characters like Gingy, Pinocchio, the Big Bad Wolf, and the Three Little Pigs work together to distract Charming long enough for the ladies to escape. An accidental slip reveals Shrek's quest to find Artie, prompting Charming to dispatch Captain Hook and his crew on their trail. Additionally, Rapunzel, now infatuated with Charming, betrays Fiona, leading to the ladies being imprisoned in the castle dungeons.
As Shrek and his party hide on Merlin's island, they evade capture by Hook, who divulges Charming's takeover of Far Far Away. Shrek encourages Artie to return to the school, but Artie cleverly convinces Merlin to use magic to transport them directly to Far Far Away. The spell backfires, resulting in Donkey and Puss exchanging bodies. They soon encounter Pinocchio, who reveals Charming's plot to eliminate Shrek as part of a sinister show. When they attempt to infiltrate the castle, they face capture instead.
In a climactic moment, Charming prepares to slay Artie to solidify his claim to the throne. In a twist to save Artie, Shrek fabricates a story, claiming that he only wanted to use Artie as a king’s stand-in. This declaration sways Charming, allowing a dejected Artie to escape. Meanwhile, Donkey and Puss find themselves trapped alongside Fiona, Lillian, and the other princesses. Frustrated by the prisoners' lack of initiative, Lillian breaks through the dungeon wall with sheer determination. The princesses join forces to rescue Shrek, while Donkey and Puss release their allies, including Gingy, Pinocchio, Dragon, and Donkey's children.
Charming sets the stage for a theatrical showdown, preparing to eliminate Shrek before the gathered crowd. Just as he is about to deliver the fatal blow, Fiona, Puss, Donkey, and the other princesses rally the fairy tale characters against the villains. Though they initially face overwhelming odds, Artie intervenes, rallying the villains with a speech encouraging them to seek acceptance rather than continue as outcasts. The remaining villains rethink their choices, while Charming, refusing to heed Artie's words, charges at him with a sword. Shrek intervenes, appearing to take the hit. Charming mistakenly misdirects his strike and self-declares as king, but just then, Dragon takes down the stage structure, eliminating Charming from the equation.
With Charming out of the picture, Artie is crowned the new king of Far Far Away, leading to a joyful celebration. As the festivities commence, Merlin appears and restores Donkey and Puss to their rightful bodies. Later, back in the swamp, Shrek and Fiona navigate the challenges of raising their new triplets, with the support of their dear friends Donkey, Puss in Boots, Lillian, and Dragon, showcasing the importance of friendship and family in this new chapter of their lives.
