When Timmy feels sorry for the town’s caged prize goat, Chompy, he wishes that Chompy could be free.
The episode begins with Vicky, who is standing watch over Timmy and a crowd of cheering kids who are eagerly awaiting the arrival of Chompy the Goat, the town's mascot, at Dimmsdale City Hall. Cosmo and Wanda are with Timmy, disguised as balloons. Cosmo asks Timmy what a "Chompy" is and if it hurts, Timmy tells them Chompy's story and shows them a photograph before Vicky comes over and gives him a wedgie. She is annoyed that his parents are making her take Timmy on a tour of City Hall. The Mayor comes over to the crowd and asks them if they want to hear about his accomplishments, but everyone wants to see the goat. As they walk to where Chompy is held, the Mayor shows them portraits of obviously exaggerated heroic situations that Chompy has been in, including inventing a cure for polio. When Timmy corrects the Mayor, he screams that the patent office are liars. When they get to Chompy, the Mayor reveals him from behind a curtain: he is being held in a cage and looks sad. Cosmo remarks that he is just a smelly old goat, the Mayor overhears him and Cosmo and Wanda pop out of existence. The Mayor sends everyone else off to the Chompy gift shop besides Timmy. The Mayor then angrily orders Timmy to beg for forgiveness to the town hero, and then leaves.
Timmy, Cosmo, and Wanda approach Chompy's cage, and Wanda remarks that he looks quite sad. Timmy wishes for goat mind reading powers, and sees that Chompy wants to frolic and be free with a mate. Timmy wishes Chompy free and opens his cage, Chompy licks Timmy's hand in thanks before Cosmo and Wanda poof him away. Vicky arrives to bring Timmy home, but not before giving Timmy a wedgie that pulls his underwear over his head. Timmy runs around blindly and smacks into a wall, before stumbling back and knocking over Vicky into the cage where Chompy was held. The Mayor and two police officers arrive and see that Chompy is missing. They blame Vicky and think Timmy is the underwear masked hero that stopped her. Vicky is arrested and taken away, and the Mayor awards Timmy with a ride home in a hovercar with Miss Dimmsdale. Wanda tells Timmy that Vicky is in a lot of trouble and that he should tell the truth, but Timmy is too tempted by the Mayor's rewards to say anything. He is given a 10-year-old's driver's license and drives the hover car home, crashing it, though Miss Dimmsdale assures him that he has town hero's car insurance and doesn't need to worry. As Timmy approaches his house, he is accosted by a crowd of kids wearing underwear over their heads, thinking Timmy is a superhero. They chase him into his house, where his parents are also wearing underwear on their heads and celebrating his birthday. Timmy says that it isn't his birthday, but his dad tells him that every day is a birthday for a goatnapper stopping hero.
Timmy, Cosmo, and Wanda are watching television in Timmy's room. Wanda is about to scold Timmy about Vicky's wrongful arrest, but she is shushed when a news cast about Vicky is shown on television. The police are interrogating Vicky by giving her a bad hair day: rubbing balloons on her hair, creating static and making it puffy. Vicky pleads that she is innocent and telling the truth. Cosmo and Timmy laugh at this, but Wanda tells him that is not fair and he should do something. Timmy says he will find a way to free Vicky once the cake stops tasting so good. That night, Timmy is having a nightmare from his guilt about Vicky, and when he awakens, there is all sorts of stuff flying around his room like in a real nightmare; it was really there because he wished for it in his sleep, and his Fairy Godparents must grant the wish no matter what. Timmy wishes everything back to normal just as he sinks into a flood of cake frosting. The same thing happens again, so Wanda poofs into a shrink to look into Timmy's subconscious. He is having nightmares because he knows he is not the town hero and he is really the goatnapper since he let Chompy go in the first place. Timmy's parents overhear the commotion and come in to check on Timmy, who asks them if they would be upset if he wasn't really a hero. They stare him blankly for a moment, and then assure him they'd still love him. Timmy asks them how they would react if hypothetically he was the goatnapped, and his father says he would scream like a girl and faint. Timmy's parents wish him goodnight, and he decides that he must stay a hero and live with his guilt, to get past the nightmares he simply won't sleep.
A few sleepless nights pass and Timmy has to go to school. While dozing off on the school bus, Timmy mutters and inadvertently wishes for it to be raining ducks, Cosmo and Wanda make it so. This happens again with a swarm of mice in Mr. Crocker's class. School ends with everyone being chased out of the front doors by the mice and ducks. Cosmo and Wanda are disguised as mice as well, and they decide they need to get Chompy back before Timmy wishes for something dangerous. On cue, Timmy suddenly has an outburst and wishes for a gigantic monster that won't go away until he tells the truth about Chompy. Cosmo and Wanda hit themselves in the face, and then grant the wish. A giant monster appears in Dimmsdale and stomps through the town, right up to Timmy. It is about to crush him with its foot when Timmy wishes he was brought to Chompy. Cosmo and Wanda poof him into the grass field Timmy saw in Chompy's mind earlier. Timmy dozes off again and wishes for the field to be on fire in his sleep, a small fire starts and begins to spread, but it is quickly stomped out by Chompy. Timmy wakes up and sees Chompy, he hugs him and asks him to return to Dimmsdale with him. Chompy bleats and points to his family, his mate and two kid goats. Timmy realizes what he must do and poofs back to Dimmsdale.
In front of City Hall, Chet Ubetcha (his early character design) is introducing Timmy at the podium. Timmy tells the crowd that he is not a hero, the Mayor interrupts and insists he is being modest and deserves another hovercar, but Timmy comes clean and tells them that he is the one who freed Chompy. Timmy's parents watching it on television at home spit out their drinks and his father screams like a girl before fainting. Vicky also sees this and spits out the water being spoon fed to her in the stockade holding her as she watches on a television from her cell. The giant red monster terrorizing town is also unwished by this. Timmy tells the crowd he freed Chompy because he looked sad and miserable being locked in a cage. Everyone seems touched by this at first, but when Timmy asks if he is off the hook, the Mayor orders a huge crowd to start chasing Timmy. Chompy and his family see this on television and rush to the scene as Timmy is cornered in a dead end alley. The mob sees Chompy and his family and are happy to see that he is okay. The Mayor says that because of Timmy they have four happy mascots instead of one miserable one. The Mayor shakes hands with Chompy and says that he is free to come and go as he pleases.
Back home, Timmy's upset that his parents have grounded him, and his mom explains that while they're proud of Timmy for telling the truth and helping Chompy and his family, that doesn't change the fact that he lied to the whole town in the first place. After Timmy points out this lie ultimately had good intentions, but his father screams like a girl and faints again. Timmy's mom kisses him on the forehead and then drags her husband out of the room by his legs. Timmy quickly falls asleep as Cosmo and Wanda watch. They're happy that Timmy's not sleep-wishing anymore and that he's not feeling guilty about what happened. However, Cosmo admits that he can't help but wonder if there was something they forgot to do--Wanda figures that it's probably nothing and the episodes ends with Timmy wishing for raining ducks again in his sleep.
When Cosmo was wondering what he, Wanda and Timmy forgot to do, it cuts to Vicky, who's revealed to still be stuck in the stockades, and is calling for help. In the end, Chompy appears before Vicky, having apparently heard her calls for help. However, instead of helping Vicky out, Chompy runs behind her and (in a nice bit of karma) gives her a wedgie that's bad enough to make her scream.