In a remarkable twist of fate, Thelma, portrayed by Brittany Howard, is a small farm pony brimming with dreams of stardom. She unexpectedly undergoes a transformative journey into an unlikely unicorn after a chance encounter with a clumsy truck driver and a splatter of sparkling paint. This surprising makeover catapults her into the local limelight, as she begins to serenade a thrilled audience right at her farm. Although her bandmates, Will Forte as Otis and Jon Heder as Reggie, voice their concerns, Thelma seizes the opportunity to revel in her newfound fame, donning a striking disguise that quickly captures the attention of enthusiastic fans.
Simultaneously, Peggy Purvis, a savvy retired record dealer, stumbles across The Rusty Buckets' unique sound on television and chooses to invest in their next big leap. This decision sets off a chain reaction, bringing Thelma into the sights of Vic Diamond, a crafty music manager linked to the mysterious Nikki Narwhal. In a push to boost Thelma's visibility, Vic persuades Peggy to showcase her as an opening act for Nikki's upcoming concert series. However, the situation escalates dramatically when a missile strike – carried out by Vic himself – leaves Thelma and Otis' crew stranded on the side of the road as he speeds away.
Refusing to be disheartened, Thelma takes the stage at Nikki's concert, treating the audience to a solo act that earns her a thunderous standing ovation. Vic, unable to resist the allure of sudden fame, steps in to sign Thelma to his management roster, orchestrating her rise to stardom while maintaining the illusion of her unicorn identity. Yet, when Nikki's plots to undermine Thelma's newfound glory backfire unexpectedly, Thelma finds herself in a fierce rivalry with her former adversary over the true price of celebrity.
The plot thickens as Vic's persistence pays off, securing Thelma (with her true identity still concealed) a prized spot at SparklePalooza, setting the stage for shocking developments. At a prestigious awards ceremony, a chance encounter with Megan (whose horn is wobbling perilously) unfolds dramatically in the restroom. With the truth poised to unravel her carefully crafted unicorn facade, Megan confronts Thelma with an ultimatum: abandon the music scene forever or risk her deception being unveiled. Reluctantly, Thelma concedes, launching a desperate search that results in her sudden disappearance.
Fast forward two weeks, Thelma embarks on an unexpected road trip with the very same mysterious driver who had sparked her unicorn transformation. During their journey down the highway, he reveals his long-buried fear of being rejected by his girlfriend for his true self. Inspired by this heartfelt admission, Thelma asks him to drop her at a nearby gas station, where she joyfully reconnects with old friends.
Determined to reclaim her destiny, Thelma and her companions make a spectacular return to SparklePalooza just as Nikki's much-anticipated performance is about to commence. In a stroke of brilliance, they elude the watchful eyes of Megan and Vic, allowing Thelma to don her distinctive unicorn disguise once more. However, this time she boldly sheds the artificial persona, unveiling her authentic self to the astounded audience.
Initially shocked by this sudden shift, the crowd quickly becomes enchanted by Thelma's heartfelt performance, which champions the beauty of embracing one's true identity. Moved by the display, Nikki renounces both Megan and Vic as her agents, paving the way for a fresh beginning.
Months later, Thelma and her friends flourish in the music business under Peggy's keen guidance. Just when it seems that everything has settled down, an unforeseen twist arrives in the form of the same driver, who accidentally grants Otis a whimsical makeover that transforms him into a pegasus-like creature. The ensuing playfulness sends Thelma into joyful fits of laughter, affirming her status as a true free spirit.