In 1985, an imaginative young boy named Anthony Henry "Tony" Fisher (Jake Thomas) was born and raised in Waco, Texas with his parents. On his 5th birthday, he gets magic wizardry stuff and accidentally kills them.
At 7, he gets to live in a mansion in Stanford, Connecticut with the dastardly Aunt Hazel Fisher (Kathy Bates) and her sister, Aunt May Fisher (Glenn Close). The Fishers do their housework and that night, Tony colors a picture of his friendly creature friends in a rural village called Lake Hoohaw and looks at his spell book and is told not to do wizard stuff or magic tricks or spells by Auntie Hazel who gets angry at him.
The next afternoon, Tony takes a bite out of a peanut butter and jelly sandwich that his two aunts made him for lunch. That night he packs up his stuff, goes into a wardrobe, transforms into a river otter and is transported to Lake Hoohaw where he befriends three other young river otters who are cousins, the lovable Peanut Otter (Adam Rose), the feisty Jelly Otter (Jenell Slack-Wilson) and the sweet Baby Butter Otter (Gina Marie Tortorici). On their tour of their houseboat, they meet their parents, Ernest (Chris Phillips) and Opal Otter (Gwen Shepherd) and they see their pet fish, Bubbles, and sing "Bubble-O, Popple-O."
Meanwhile, Auntie Hazel and Auntie May are looking for their nephew, Tony. Suddenly, he was gone, so the two poor aunts started crying.
The next morning, the four young Otter kids get ready for their picnic, head out the door and sing "An Oodely-Doodely Day." When they get there, they meet their friends, Munchy Beaver (Jason Harris Katz), Pinch Raccoon (Cody Pennes) and Flick Duck (Dave Foley) and they sing a song called "Friends."
Then their aunt, Anna "Aunt Nanner" Otter (Nancy Giles) comes down on her hang glider and joins the kids for their picnic lunch and games. First, they take turns flying a kite, but the wind sweeps Baby Butter away and gets stuck in a tree. So Tony climbs the ladder and rescues her down from the tree. Next, they play catch with a red rubber ball. When Tony tries to catch the ball, he leaps up and falls and breaks his arm. So they have to make his arm feel better.
That night in bed with a bandaged arm, Jelly, Peanut, Baby Butter, Munchy, Pinch, Flick and Aunt Nanner give poor Tony some gifts to make his arm feel better.
The next morning, Mayor Jeff Otter (Bruce Bayley Johnson) tells everyone that Tony's arm feels much better. Then they sing "No Big Deal."
Then Tony and his friends decide to build a sandcastle, but there are no shovels or pails around them. So they do "The Noodle Dance" by dancing around and pointing to their brains. Jelly has an idea. With the help of the Snooties, Ootsie (Eddie Korbich) and Bootsie (Lara Jill Miller), Tony makes the shovels and pails appear with his wand and they are happy to get them and build the sandcastle together with a song "All Together We Can Build It." Then Tony imagines that the Snooties' landmark, Mount Snootiemore, was destroyed and poor Ootsie and Bootsie are running away.
Jelly wishes nothing lasts forever. Next, the kids watch the clouds make into shapes while Peanut and Jelly sing "Imaginings." Then they play tag while Peanut and Jelly sing "Go Slow, You Know."
That evening during their sleepover, Uncle Ernest and Aunt Opal cook spaghetti and meatballs for Tony and his friends to eat for dinner and babbleberry pie for dessert. That night, before going to bed, they sing a special never-ending song, "No Place We'd Rather Be," along with the Snooties and Mayor Jeff.
The next morning, Tony wakes up, returning to his normal human self with his new clothes on, and goes to look for Peanut, Jelly, Baby Butter, Munchy, Pinch and Flick. Suddenly, his angry aunts, Hazel and May, all dirty, soggy and soaking wet arrive at Lake Hoohaw and they have to send him back home to Stanford. But Tony disagrees, so he calls his friends for help and the kids come and they all defeat his two aunts by zapping, scaring, shooting, biting and poking them. The Lake Hoohaw Police come and take Tony's poor aunts away to prison.
Everyone cheers and Mayor Jeff, Cap'n Crane (Joey McIntyre) and his wife Connie (Jackie Hoffman) congratulate them for getting rid of Tony's poor, mean aunts. Tony introduces all his friends in Lake Hoohaw: Cousin Jelly, Cousin Peanut, Cousin Butter, Munchy, Pinch, Flick, Scootch (E.G. Daily) and Ootsie and Bootsie Snootie and they all adopt Tony. Then a few months later in the city of Los Angeles, California, all the Lake Hoohawans build a new mansion for them and Tony to live in. Then they celebrate Tony's 8th birthday party and after that, he writes and illustrates a book called "Me and My Friends from Lake Hoohaw" and reads it to them when he's finished. Now Tony has one big brand new family and his new place and his new city in the whole world. All is well that ends well.