In the year 2035, society finds itself subjected to a government mandate that taxes dreams and enforces heightened surveillance amongst the populace. Amidst this backdrop, Dream Auditor James Preble embarks on a journey to the tranquil countryside to visit the elderly artist Arabella Isadora, affectionately called Bella, who lives in a quaint abode known as Strawberry Mansion alongside her beloved pet tortoise Sugar Baby. Bella's dreams are meticulously archived on a vast collection of VHS tapes, which Preble must review as part of his auditing process; at her urging, he agrees to stay in her guest room during this time.
As Preble conducts his audit, he finds himself drawn into his own dreams where he interacts with Buddy, who pitches commercial products to him in an alluring pink room. His dream encounters take a twist when he meets a younger, enchanting version of Bella. Their connection deepens, both in the dreamscape and the waking world, as she reveals that the government enables advertisers to infiltrate people's dreams with advertising. To combat this intrusion, she presents Preble with homemade headgear that effectively shields him from Buddy's relentless marketing onslaught. Tragically, Bella later passes away peacefully, leaving Preble heartbroken when he discovers her lifeless body.
Shortly after, Bella's estranged son, Peter Bloom, arrives with his wife, Martha, and their son Brian to manage her affairs. Peter suggests to Preble that his audit is complete, but things take a turn when Preble catches Martha and Brian destroying the VHS tapes—an act deemed a federal offense. When Peter reacts aggressively by knocking him out with a bowling pin, Preble dreams vividly of being pursued by exaggerated versions of Peter's family, only to be saved once again by the younger Bella. Together, they seek refuge on a small island where they live in harmony for an extended period.
As their bond strengthens, Bella confides in Preble that Peter is the CEO of the nation’s largest advertisement corporation, which puts him in a precarious position due to his knowledge of the invasive advertising scheme. Their peaceful existence is shattered by the appearance of various versions of Buddy, resulting in Preble waking up to find Peter once more knocking him out, this time setting the room ablaze, leaving him to face possible death.
Upon waking in his dream, Preble assumes the role of a ship's captain alongside two humanoid sailor rats, Richard and Marcus Rat. They embark on a seven-year quest across the seas in search of Bella, though doubts about the mission’s purpose gradually arise. Their journey takes a dark turn when a gigantic Blue Demon attacks their ship. Preble soon finds himself dining with the Blue Demon, who holds Bella captive. Convinced of the urgency to save her, Preble frees Bella after the Demon retires for the night, but Bella warns him that he must wake up soon to escape the looming fire, prompting Preble to transform into a caterpillar and journey across the earth for centuries, ultimately returning to his dream room.
Confronted by a furious Buddy, Preble receives timely assistance from Bella, allowing him to triumph over Buddy once and for all. As they bid farewell, a gathering of the dream's colorful characters sends them off; an apparition of Peter expresses a heartfelt apology to both Preble and Bella. Together, they float into the cosmos, but the impending threat of the heat from the fire marginalizes their existence. Upon awakening, Preble narrowly escapes the burning house, but he returns to salvage the headgear, Sugar Baby, and one of the tapes, watching mournfully as Strawberry Mansion succumbs to the flames.
Returning home, Preble watches the VHS tape that showcases Bella on a whimsical date with a mysterious grass man. As the grass is dispersed, it reveals Preble himself underneath, leading to a poignant finale where the two embark on a journey hand-in-hand back to Strawberry Mansion.
