One morning in the magic garden, Dougal the dog is yelling at his cuckoo clock for dropping its pendulum on his bed. He suddenly realises that something strange happened last night, and he takes the train to speak to Zebedee about it. After a talk with Ermintrude (who is standing on the railway track), Brian (who is a bit faster than the train), Dylan (who is watching the mushroms grow), and Mr. McHenry (who is tending his crops), he finds Zebedee conducting an orchestra of French lollipops. Once the lollipops leave on the train, Dougal tells Zebedee about what happened last night. He got to bed early, because he was tired from all his work. After a few seconds of sleep, he woke up. He got out of bed and heard a loud shriek. It was an owl who said to him "Allo, cheeky!". Dougal then heard something even more sinister. A voice. After he hears the voice, he hears a second, female voice. They were coming from the old Treacle factory, which had been shut down. After seeing it from a red tree-like object, he hears the female voice again. He returned to his bed and got back to his rest. After the flashback, Zebedee asks Dougal if he was not dreaming. After Dougal asks if he's going dotty, Zebedee bounces away. Dougal then goes to see Florence.
Florence is busy cleaning her house, then she leaves for the roundabout. Her friends show her something on the magic roundabout. A blue cat. After doing a small dance, he decides to be named Buxton. Zebedee tells Florence that Dougal has a "problem". While Florence's friend ride on the roundabout, Florence goes to speak to Dougal, who is picking flowers. Florence introduces Dougal to Buxton. Dougal, jealous of the attention directed toward Buxton, dislikes him and tries to convince him that he, Buxton, will not like staying in the Garden because of the rain. At the bridge, Dylan, Ermintrude and Brian meet him as well. Ermintrude says that "Blue is Beautiful". This reminds Dougal about what happened last night at the Treacle factory. Everyone decides to let Buxton sleep at Dougal's house. They make the bed for him, while the cuckoo puts his pendulum back on the clock.
Meanwhile, Florence is picking Blue flowers and Dougal is having a walk, but steps onto a hoist and calls for help. Buxton hears this and goes off to the Treacle factory. Once he makes it, he is introduced by the blue voice (played by Fenella Fielding).
Buxton enters the ruins of the old treacle factory where he is crowned king after correctly identifying the colours of seven doors (coloured different shades of blue). At the entrance, he is warned that he will get shot by a crossbow if he guesses incorrectly or forgets. He recognisess the first door as Blue. When he enters the next room, he discovers a machine spewing out Blue flowers and dumping the other colour flowers. The Blue voice than says her famous line "Blue is beautiful, Blue is best. I'm Blue, I'm beautiful, I'm best!". The Second door is Cobalt Blue. Buxton enters a room with blue and pink clothing. A large machine is collecting the blue clothing and putting the pink clothing in a trunk. The machine also accidentally puts a blue sheet onto Buxton. At the third keyhole shaped door, Which is Saxony blue, He meets an array of Scary masks. Once he escapes, Buxton goes through the fourth door, which is Indigo. Buxton finds himself in an observatory like room. He finds the fifth door to be Baby Blue (Though forgetting at first). He then enters the room of Thunder and Lightning. The next door is Prussian Blue. He finds the Guard room, where his blue men are created. Buxton then jumps through a small gap in between his men to reach the final door, Royal blue. After being crowned, he sings that he is king, and his men like his dancing. One of them even dances but gets shushed. Meanwhile, Ermintrude is painting blue pictures. Brian helps Dougal down from the Hoist by chewing the rope holding it. Dougal then reminds everyone that Buxton is evil, but nobody believes him. A Blue cactus then shows up while Ermintrude is showing Buxton all her paintings. They then find Zebedee has lost his Magic Moustache. They start a great search for the Moustache.
Buxton then throws all the characters of The Magic Roundabout except Dougal into prison and reveals himself to be in possession of Zebedee's magic moustache so they are unable to escape with magic. Dougal then dyes himself blue and enters the treacle factory where he is named prime minister by Buxton. When Buxton and Dougal travel to the moon to conquer it, Dougal falls in a puddle and the dye washes off, revealing that he is in fact not blue. He then conquers Buxton, returns to earth, destroys the treacle factory. Buxton is confronted by the blue voice for failing her to take over the garden. She gets crazy by shooting out lighting bolts everywhere throughout the entire factory. Dougal frees his friends and banishes blue from the garden. Buxton then changes from blue to white and Brian returns Zebedee's Magic moustache, before snow falls over the magic garden.