The narrator reads a book about a frog named Freddy who lived in a pond of water. He was very funny, so animals assumed that the water of the pond he lived in was magic water which made him funny. Animals came to it and drank it and they became funny too. The narrator is revealed to be Garfield and he is reading the story to Odie. Jon calls them for breakfast. He cooks breakfast while doing a disco act and he tells Garfield and Odie that he is doing it for the "Fun Fest" (he says he has been doing it since 1978, the year the first Garfield script came out), a talent show which is held every year at the Comic Studios to see who would be the first comic on the cartoon page, and all the comic strip character participate in the competition. Odie shows that he is doing a mime, and Jon tells Garfield he should do a dance with Arlene, which she wanted to do for years but Garfield wanted to do something different. They drive to the Comic Studio with Arlene and Nermal (who teases Garfield).
The Comic Studio is all decorated for the "Fun Fest", and everybody is practicing for it. Then they get to work, but it's "Fun Fest" auditions instead. Charles the Director chooses Betty, Bonnie Bear, and Bonita Stegman as the judges for "Fun Fest." Garfield performs all the great scenes from all the great movies in 30 seconds with Arlene (James Bond, Tarzan, The Wizard of Oz, "Titanic" etc.) After the auditions, Arlene comes into the living room with Garfield, telling him that she really wants to do the tango dance this year. She gives Garfield his costume. But Billy Bear, Randy Rabbit, and Wally all laugh at it. Garfield rejects Arlene's idea, and gives her another idea, which Arlene finds not amusing. A cat named Ramón comes in and tells Arlene that he wants to do the dance with her. Arlene starts to like him which makes Garfield jealous. Ramón is successful at the auditions.
During the night, Garfield reads the storybook. In the morning, Odie (in his mime costume) comes in and shows Garfield it's Fun Fest that night. Jon calls Garfield and Odie for breakfast. Odie finds an envelope in the storybook and tries to get Garfield to read it in the kitchen, the car, and the dining room at the Comic Studio. All three attempts fail (because Garfield thinks Odie is playing a game of "Mailman" and is trying to cheer Garfield up). Odie tries to get Garfield to read it in the break room of the Comic Studio. This attempt is successful and Garfield opens the envelope. Garfield finds a map to the Funny Water in the envelope. He sets the map on the table in the living room and Garfield demonstrates his plan. He'll go to the Funny Water to drink it and get funny in time for "Fun Fest" in the evening. However, Garfield knows its fiction, and rejects his own idea. Garfield and Odie leave for the Funny Water, after he sees Arlene in Ramón's strip.
According to the map, Garfield and Odie must first go through the Mystical Forest. While in the forest, Garfield and Odie meets certain misfits like Stan the Squirrel who annoys Garfield with his curtains. He also meets Junior the Bear who shows Garfield he should go right at a fork in the road saying "To get to the magic pond tonight, follow your heart and you'll always be right" (He is called by his mother who tells him that he should go to dinner). Garfield thinks that they should go right. But Odie disagrees by showing Garfield that he thinks that since their hearts are on the left side of their bodies, then if they follow their hearts, they must go left. They follow Odie's idea and they go left. Garfield and Odie come across a river and try to cross it, but they find out that there are alligators in the river. Two birds tell the duo that they should do stupid things and get the alligators to laugh so they can cross the river. Garfield tries to act stupid, but the alligators don't laugh. Garfield gives up and Odie decides to help Garfield and does stupid things causing the alligators to laugh loudly. While the alligators laugh, Garfield and Odie manage to get across the river. Garfield goes to a pond, supposedly the Funny Water, and he drinks the water. Then they see a tall frog in a mumu on a leaf, and the leaf floats near Garfield and Odie, and the frog goes onto land. The frog tells Garfield and Odie the water is not the funny water and it really is sludge water from a nearby town. Garfield spits the water out in disgust.
The frog reveals himself to be Freddy Frog from the story and tells Garfield that the magic pond (where the Funny Water is) had been moved years ago. Freddy puts Garfield and Odie through a series of comical challenges and they succeed as Freddy teaches Garfield how to be funny. Garfield and Odie reach the funny water by climbing up a really high ladder to a floating island and Garfield drinks it as well as saving some in a bottle. The two realize they won't make it back in time for Fun Fest so Freddy provides them with a hang glider, telling them that all landings end with a crash. Garfield and Odie push it and fall down a cliff and almost collapse. However, the glider flies back into the air. After a bumpy flight, Garfield and Odie crash into the building and sees his role as host was given to Ramón because Garfield didn't show up.
Garfield is about to drink the Funny Water he saved earlier, when he realizes the bottle got smashed when he landed the glider. Garfield believes he is no longer funny and feels too depressed to perform, especially without Arlene, and goes to the back alley. Freddy appears before him and Garfield begs him for more Funny Water. Freddy then tells him that the Funny Water is just regular water and he doesn't need it. Garfield claims he felt funnier after he drank the water and Freddy tells him that's because he IS funny and that he'd only forgotten to follow his heart (like Junior Bear said). But Freddy then encourages Garfield, his new friend, along with Odie, and Garfield knows how to fix everything... Tango!
Garfield puts on his Tango costume and confronts Ramón while he is dancing with Arlene. Ramón throws Garfield onto the ceiling, but Garfield ties a rope to himself and jumps down. Garfield and Ramón fight over Arlene, and cause a small tornado. Garfield and Arlene are flung to the ceiling and the two dance in the ceiling, but Ramón grabs Arlene and brings her back to the ground. Garfield tugs at Ramon's leg, and it falls off. Garfield continues to pull off Ramon's body parts. Garfield manages to outdance Ramón who turns out to be Nermal in disguise. Garfield then apologizes to Arlene as he finishes the dance with her. As they finish the dance the judges declare them the winners, all giving them ten points. Nermal tells Odie he'll be Pierre (his new disguise) next year. Odie rejects it. Freddy then concludes the story, and closes the story book. He then flies home on the glider.