Following a disastrous sea voyage in the Inventor's clockwork ship, the Mayor and his friends return to Toytown to discover that all of the inhabitants have left for Arkville.
While on patrol late one night, Ernest the Policeman finds Larry the Lamb and Dennis the Dachshund looking for fairies. While investigating a fairy hole, Ernest disappears.
Dennis the Dachshund and Larry the Lamb devise a plan to make some extra pocket money when they meet a struggling artist. However, the plan unravels when the Mayor asks Larry to paint his portrait.