Tottington Hall's annual Giant Vegetable Competition is approaching. The winner of the competition will win the Golden Carrot Award. All are eager to protect their vegetables from damage and thievery by rabbits until the contest, and Wallace and Gromit are cashing in by running a vegetable security and humane pest control business, "Anti-Pesto".
However, they are faced with two problems: the first is Wallace's growing weight and the second is inadequate space for the captured rabbits. Wallace comes up with an idea use his Mind Manipulation-O-Matic machine to brainwash the rabbits, allowing them to run freely without harming everyone's gardens. While performing the operation, he accidentally kicks the switch from Suck to Blow and a rabbit gets fused to wallace's head, somehow leaving them with a semi-intelligent rabbit who no longer has the appetite for vegetables, whom they name "Hutch". Soon the town is threatened by the "Were-Rabbit", a giant rabbit-like monster which eats vegetables of any size. During a chaotic yet hilarious town meeting, Anti-Pesto enters into a rivalry with Lord Victor Quartermaine to capture the Were-Rabbit and to win Lady Tottington's heart. After the first night of the Were-Rabbit, the townsfolk start to argue about what to do.
Wallace and Gromit come to the theory that Hutch is the Were-Rabbit. Wallace is overjoyed however, because this technically means he has already captured the beast, and goes to tell the good news to Lady Tottington. After a hectic night-time chase and a series of clues, Gromit discovers that the Were-Rabbit is, in fact, Wallace, suffering from the effects of the accident with the Mind Manipulation-O-Matic having caused him and Hutch to each take on aspects of the other; Hutch has gained Wallace's entire personality (right down to his liking for cheese) and even displays Wallace's knack for inventions and regularly repeats some of Wallace's old phrases (e.g. "I do love a bit of Gorgonzola!" or "I'm inventing mostly" ). Victor corners Wallace during the night, jealous of Lady Tottington's growing fondness for him because of his humane practice of pest control (whereas Victor thinks it's more effective to shoot and kill them). But then Wallace falls into the path of moonlight and transforms. Victor, having identified the Were-Rabbit, goes to Reverend Clement Hedges and gains access to "24-carrot" gold bullets - supposedly, the only things capable of killing a Were-Rabbit.
The next night, during the final showdown, Victor and his dog Philip capture Gromit, who subsequently escapes and decides to make the ultimate sacrifice by using the marrow he had been growing for the competition as bait for Wallace who, in his rabbit form, has burst in upon the vegetable contest, causing panic. Victor tries to shoot what is apparently the monster, but Gromit is one step ahead of him, using a rabbit costume he and Wallace had created prior to the discovery of the Were-Rabbit's true nature as a trap. Unfortunately, the marrow cannot keep Wallace's attention as Victor tries to take the golden carrot award from a distressed Lady Tottington (The only vaguely bullet-like object left to him after he exhausted the gold bullets provided by the vicar). Wallace ascends to the rooftops, holding a screaming Lady Tottington in his hand. Discovering his identity, she promises to protect him, only to be interrupted by Victor. Meanwhile, in a mid-air dogfight in toy aeroplanes, Philip chases after Gromit. Gromit forces his foe out of the air in a fiery crash and explosion - but Philip manages to hold on to Gromit's plane and the two grapple with each other. The fight rages on and in the end, Gromit releases Philip through the bomb doors and into a bouncy castle.
On the roof of Tottington Hall, Gromit's toy biplane circles Wallace, who clings onto the flagpole at the top of the building for dear life. Victor, wielding the Golden Carrot trophy inside a blunderbuss he finds at an antiques table at the fair, tries one last time to shoot Wallace, but Wallace is saved by Gromit, who grabs onto a rope from a flagpole and swings his plane into the path of the improvised bullet. Unfortunately, since it is a toy plane not intended for flying, when Gromit accidentally lets go of the rope, the plane begins to descend rapidly. Wallace jumps from the flagpole and catches the plane, thereby breaking Gromit's fall into the cheese tent below. Victor gloats, but is knocked unconscious by Lady Tottington, using a giant carrot. He falls into the tent too, where Wallace lies unconscious and seemingly dying of his injuries. To protect Wallace from the angry mob outside, Gromit dresses Victor up as the monster (using the marionette he used earlier as a lure for the Were-Rabbit), and throws him out of the tent. Philip, believing Victor to be the beast, bites his master, and the angry mob chases Victor away.
Gromit and Tottington tend to Wallace who, seconds later, breathes his last and morphs back into his human form. Gromit, the rabbits, and Lady Tottington are saddened by their loss, but Gromit is able to revive Wallace with a slice of Stinking Bishop cheese. Gromit, for his bravery and his "brave and splendid marrow", was awarded the (now somewhat battered) competition trophy, and Lady Tottington turns Tottington Hall into a wildlife refuge where all the rabbits, including Hutch, can live in peace.