Greg the Bunny successfully prods his slacker buddy Jimmy (Seth Green) Bender to ask his dad (Eugene Levy) the director of a cable children show 'Sweetknuckle Junction' for an off camera office job. However, Greg is mistaken for a actor and ends up auditioning for the lead in the show after Rochester Rabbit is fired after failing to correctly deliver his lines due to his drinking issues.
After the 'Sweetknuckle Junction' cast and crew attend a focus group of children critiquing the show, Alison Kaiser (Sarah Silverman) decides the show needs a hip new young make over and believes Jimmy Bender's (Seth Green) ideas are perfect for the shows new relevant and cool appeal. Jimmy's father Gil Bender (Eugene Levy) disagrees.
Greg is jealous when Jimmy gets a new love interest (Lindsay Sloane) whose dog is quite aggressive. Meanwhile, the gals revolt when Gil doesn't invite them to a paint ball weekend with an intense instructor (David Koechner).
Like Cassius Clay/Muhammad Ali in the 60's, Greg the Bunny is recruited by a fanatical puppet cult called the 'International Puppet Allilance' run by a powerful and persuasive puppet named Hurbada Hymena. Greg becomes a willing celebrity puppet spokes person for the groups radical puppet ideology, which in turn, creates an increasingly difficult work environment for Greg and his fellow cast and crew mates of 'Sweetknuckle Junction'.
While on the studio lot, Dottie is suddenly approached by a struggling actor Leo Cornelli (Michael McDonald) threatening to release a video tape on the internet of Dottie stripping if she doesn't get him a job for the part of a Singing Mailman on the show.
Greg the Bunny is plagued with nightmares for replacing Rochester Rabbit on the show, so Greg embarks on a quest to find Rochester and earn his forgiveness by getting him a job on the show. Jimmy Bender (Seth Green) starts flirting with Susan the Monster to make Alison jealous.
Alison Kaiser is surprised when a reporter for TV Guide (Sasha Alexander) suddenly shows up on the set to do a "behind the scenes" article on the cast and crew of 'Sweetknuckle Junction'. Seizing the opportunity of positive press, the shows producer Alison Kaiser (Sarah Silverman) desperately tries to get everyone on the same page to put on their best PR faces on and represent the cast and crew as one big happy family on a perfectly functioning working family set. Greg and Jimmy compete for the affections of the female TV Guide reporter.
Jimmy Bender becomes angry that Gil (his father) didn't tell him that his mother is dating his high school gym teacher during their trial separation. Gil becomes concerned that he's is losing both his wife, and his son, and attempts to reconnect with his son by doing father and son bonding stuff.
Attempting to improve her like ability factor the shows producer Allison surprises everyone after arriving at a party, at a local bar, that's being thrown by her fellow cast and crew mates of 'Sweetknuckle Junction'. Warren later urinates in Allison's car out of personal revenge because, he believes Allison turned down his idea to allow him to perform a Shakespeare'n monologue at the beginning of the show, after Gil pretends to pitch Allison the idea at the bar. Meanwhile, Greg the Bunny, who's passed out in the parking lot garbage cans manages to regain consciousness...
Jimmy and Greg attempt to help Count Blah get over his sense of loneliness of his deceased wife by taking him to a singles bar. However, things go unexpectedly crazy after Count Blah ends up having a one night stand with Warren's wife (Marilu Henner) who strikes up a conversation with him at the bar. Meanwhile, Allison believes Jack is psychotically stalking her after she refuses to allow him to accept a acting job portraying a psycho killer.
Greg jumps at the chance to follow his romantic interests in Dottie when he is asked to rehearse a song about friendship at Dottie's house that the both of them are planning to perform on the show. However, Dottie and Greg's personal friendship and working relationship are both put into sudden crises after Dottie over hears Greg bragging about having sex with Dottie to the other cast members the next day. Meanwhile, Jimmy pursues his romantic interests towards the shows producer Allison.
Greg the Bunny tries to prove he can take a joke by writing an anonymous racist puppet slur on the bathroom wall using the dreaded "Sock" word, then ending his own racist comment with a threat against his own life. Junction Jack is wrongly accused for the bathroom comment. Greg is reluctant to confess to writing the racial joke and death threat in hopes it will eventually all blow over, so the entire cast and crew of 'Sweetknuckle Junction' is forced to attend a puppet sensitivity workshop as a result.
The cast and crew of 'Sweetknuckle Junction' observe in shock and confusion after wrongly assuming that Jimmy is involved in a high speed chase with the LA PD after Corey Feldman steals Warren's car that Warren loaned to Jimmy so he could complete all of his daily errands for the cast and crew. Greg is an unwitting passenger in the stolen vehicle during Feldman's desperate attempt to evade capture by the police.