The film opens with con-dog Charlie B Barker and his pal Itchy, attempting to break out of the local pound.
Charlie and Itchy return to the casino that Charlie ran with his old partner, Carface. Unknown to Charlie, Carface was responsible for Charlie going to 'the pound,' with Carface intending to take over the whole gambling operation. Charlie notices that the gambling clientele are not too happy with the way things have been run while he has been away, and Charlie goes to see Carface.
Carface then convinces Charlie that they need to split up the business, since he is now a wanted fugitive. A going away party is then held for Charlie later that evening, with Charlie getting drunk, and Carface giving him a pocketwatch. Charlie is mentally unable to comprehend where he is, when Carface's goons blindfold him, and take him down to a dock, where a car is put in motion many yards away. Itchy has heard about the plan, but is too late to stop the car from killing Charlie.
Charlie soon finds himself in Heaven, being explained things by a dog named Whippet. She explains that all dogs go to heaven, though is surprised when going over Charlie's record, finding very little regarding kindness and loyalty from him. Charlie is shown that the watch he was given by Carface is connected to his own heart, and because it stopped, Charlie is now dead. When Charlie asks why it can't simply be wound back up to send him back, Whippet explains that this is not allowed. Even so, Charlie manages to get the watch away from her, and returns to life. However, as he rockets towards Earth, Whippet's voice is heard saying that he can never come back now.
Charlie soon finds Itchy, who at first thinks Charlie is a ghost, but then grows even more concerned when Charlie wants to get back at Carface for attempting to kill him. Itchy is concerned because he has heard word that Carface has a monster that he has locked away.
Charlie and Itchy break into Carface's place, only to find that the monster is actually a little girl named Ann-Marie, who can talk to animals. Carface has been using her to win (and fix) almost all the 'rat races' that the casino he runs has. Charlie soon convinces Ann-Marie that since she's an orphan, he can help her find a family that will adopt her, as well as intending to use the money that she helps win them to be given to the poor. While at the horse track, Charlie swipes the wallet of a young couple, and uses the money to help them win their first race.
Charlie uses Ann-Marie's skills to make him enough money to start a new casino. Soon after, Ann-Marie finds the wallet that Charlie stole, and refuses to talk to him again. Later that evening, Charlie has a nightmare in which he ends up in a fiery lake of lava, where demons intend to drag him under. Charlie then wakes to find Ann-Marie gone.
He soon finds that she has returned the wallet to the young couple, who seem more than happy to give her a good breakfast. Charlie finds her, and guilts her into coming back with him. However, Carface has found that Charlie is alive, and intends to kill Charlie, before he and Ann-Marie make their escape.
They find their way into a sewer system, where a gang of sewer rats intends to sacrifice Charlie to a big-lipped alligator. However, Charlie gives a long-pitched howl, which causes the alligator to spare Charlie's life due to his great singing voice. Unfortunately, Ann-Marie has caught a bad cold from being in the sewer, and Charlie is unsure what to do.
When Itchy finds Charlie, he explains that Carface and his goons have torched their casino. Charlie contends that they'll rebuild, and use Ann-Marie to recoup their losses, with plans to give her to an orphanage afterwards. However, Ann-Marie hears Charlie's words and runs off. She is soon recovered shortly by Carface and taken to a derelict ship off the coast of New Orleans.
Charlie goes after her, and ends up in a scuffle with Carface. Their fight soon causes some fuel to spill and a fire to erupt on the ship. When Carface bites down on Charlie's tail, Charlie gives a long howl that is heard by the alligator from before. It comes to his rescue and chases off Carface, but ends up dislodging the ship from the shore, sending it adrift.
Charlie attempts to save Ann-Marie, but almost loses his watch that keeps him alive. At a moral crossroads, Charlie lets the watch sink into the water, and pushes Ann-Marie out of the boat on a wooden doorframe. Eventually, the water overtakes the watch, and it stops ticking.
Some time later, the young couple have taken Ann-Marie in, as she still recovers from her sickness. Charlie's spirit then visits her, under the supervision of an enormous, dark hell-hound. However, a glowing sphere appears, and the hell-hound disintegrates. As the sphere approaches Charlie, Whippet's voice can be heard, and explains that since Charlie gave his life to save Ann-Marie, he can go to Heaven. Ann-Marie then wakes up, and the two say their goodbyes.