At Tamagotchi School, everyone is waiting for the Magical Flying Library Ship to arrive. While everyone talks about the book they want to read, Kikitchi, a new student, adds a rude comment to Mametchi's suggestion. Kikitchi's sensitive hearing then picks up the sound of a horn coming from the ship which arrives after a minute. Brother and Sister Otogitchi, siblings who take care of the ship, bring it down and let down a flight of stairs which the children eagerly climb up. Everyone then runs down to the library to pick out books to have a magical adventure in. Upon opening a book, the children chant a special spell which allows them to jump into the book and experience the story as the main character. All the children are seen having fun in various books except for Kikitchi who is seen staring at the sky alone, having taken his storybook costume off.

After the children exit their stories and leave the library, Kikitchi hears a faint voice calling out for help. He tells the others what he heard, but no one else seems to have heard it and they tell him he must be hearing things. While Mametchi, Memetchi, Kuchipatchi, Chamametchi, and Makiko walk home from school and talk about their stories, Makiko and Memetchi slip on a banana peel Kikitchi threw in front of them. As he laughs, Memetchi asks him if he enjoyed his story and he responds that he didn't like it at all. Suddenly, Mametchi shouts out that has an idea and runs home with Chamametchi. Later that night, Mametchi writes out schematics for his project and explains to Chamametchi that he wants to share happiness with Kikitchi with his idea.

The next day at school, Ms. Perfect assigns her students a new project: planting a Jolly Tree, the seed of which grows differently depending on how they are cared for. Kuchipatchi and Memetchi are seen burying and watering their seed while Mametchi uses a Rube Goldberg machine to water his. Later that day, Mametchi works on constructing his happiness project at home while Memetchi, Kuchipatchi, and Chamametchi watch. As he keeps busy with the project, his friends' Jolly Trees grow big and flourish. Eventually, Mametchi manages to get to the final step of his project. As he goes to activate it, a series of mishaps adds various miscellaneous items into the project which causes it to explode in a cloud of pink smoke. Once the smoke clears, it's revealed the project was successful, creating a small, pink fluffy creature who thanks Mametchi for creating her. After everyone introduces themselves to her, Mametchi explains that the creature can absorb happiness from others and spread it to other Tamagotchis. He then calls the creature "Hapihapitchi".

Mametchi's family and friends celebrate the birth of Hapihapitchi with cake and drinks. After seeing an advertisement for Celebria on TV everyone agrees to go there later for fun. The scene changes to Kikitchi at his luxurious home in Celebria. He eats a meal by himself and turns on the TV to see his parents, Monsieur Kikipapa and Madame Kiki, explain that they built Celebria as a place where all Tamagotchis could go to have fun. Kikitchi sadly turns off the TV and watches the fireworks outside the window.

The next day, Hapihapitchi uses her power to make everyone in Tamagotchi Town happy which makes her and Mametchi famous. The scene then transitions to Tamagotchi School where Ms. Perfect is observing drawings the students made of their Jolly Trees. Everyone's trees are depicted as fully grown except for Mametchi's which has remained a sprout from not being directly cared for. Later on, Mametchi, Kuchipatchi, Memetchi, and their respective families visit Celebria and have a fun day riding the rides and shopping. Everyone then meets up at McDonald's for lunch and encounter Kikitchi who is eating by himself. They invite him to join them, but he coldly rejects their offer and runs away.

The gang chase Kikitchi through several attractions before finally cornering him on top of a tower. Hapihapitchi uses her powers on him which fail to make him happy as he refuses to be forced into that way. He lashes out at her, stating that forcing people to be happy is nonsense and leaves. Everyone is put off by Kikitchi's outrage, but Mametchi considers his words and realizes that he may be right. Various Tamagotchis now depend on Hapihapitchi to make them happy when they're upset instead of solving the cause of their unhappiness. That night, Mametchi orders Hapihapitchi not to use her powers on anyone until he figures out what to do. Meanwhile in bed, Kikitchi remembers a childhood memory: in a park, Kikitchi heard a tree warning about it raining on the day of an upcoming festival. He tried telling the nearby children of this and they called him a liar and horrible person as they didn't hear the voice and didn't want the festival to be cancelled.

At school, the Magical Flying Library Ship comes again. Inside, Kikitchi hears the faint voice calling out again and he searches for the source. Hapihapitchi also senses a big source of unhappiness and she begs Mametchi to let her make them happy. The gang and Kikitchi continue searching for the source and run into each other, causing a book titled "The World's Happiest Story" to fall in front of them. Everyone then enters the storybook and notices that unlike the other books, they're not the main character. Mametchi narrates the story as the gang travels through it: A man named Happy lived with his dog Lucky. Happy became determined to live up to his name and become the happiest man in the world, setting off on a journey and leaving Lucky behind. He becomes a hero and accumulates riches, but this doesn't make him the happiest man in the world. The gang eventually finds Happy who refuses their help and runs off, with Kikitchi noticing his own similarities to Happy. It soon becomes clear that the story loops instead of properly ending, but everyone is forced to leave before investigating any further. As the children leave the ship, Kikitchi secretly takes the book home with him.

At home, Kikitchi notices the book acting strange and jumping around the room. He enters the book, determined to help Happy. As he does, however, a tornado of paper from the book engulfs Celebria and causes everyone caught in it to become two dimensional, like paper. After seeing the news report on the TV, Mametchi and friends head to Mamemame Laboratory to figure out how to solve the crisis. Papamametchi explains that the last page in Happy's story was torn out. Thus, Happy can't complete his story and the book has become unstable over time trying to find its ending. Kikitchi entering the book caused it to become unstable enough to affect the real world. If the paper tornado was allowed to continue, it would engulf Tamagotchi Planet and turn everyone into paper. Everyone eventually makes a plan to have the Otogitchi siblings guide Mametchi and friends into Happy's story. Once there, they could rescue Kikitchi and the siblings could write a new ending with their magic crayon and shofar horn.

Mametchi and friends ride the Magical Flying Library Ship into the paper tornado and enter the storybook. Inside, Kikitchi is seen talking to Happy who is beginning to believe he will never be happy as the land around them shreds itself into pieces. The ship finds them and everyone explains the plan. After passing through shredded pieces of scenery, everyone finds them and explains the plan. Sister Otogitchi uses the magic crayon to draw up Happy's suggested endings while Brother Otogitchi makes them come to life with his horn. However, none of them work and they fade away. Outside in the real world, the situation gets worse and more Tamagotchis are swallowed up by the paper tornado. Back in the book, Mametchi and friends give ideas of what makes them happy. Everyone realizes that being connected to others is the key to happiness, but this distresses Happy who screams that he has never been connected to anyone. The land falls apart even faster which causes Sister Otogitchi to drop her magic crayon into the abyss below. Brother Otogitchi then states that their chance of fixing the story is gone and everyone is forced to leave the book. Mametchi rushes Happy to board the ship, but he states that he can't leave even if he wanted to as he is the protagonist of the story. Determined to not leave Happy alone, Mametchi and friends leave the ship to stay with him. The world breaks apart even more and the gang run to find a stable piece of land.

The ship catches up to them and Brother Otogitchi warns them that this is their last chance to escape. Hapihapitchi begs Mametchi to use her power on Happy and he relents. She takes all the happiness of Tamagotchi Town and gives it to Happy who remembers how happy he was spending time with his dog, Lucky. Kikitchi spots the magic crayon on a piece of land floating far away and he jumps to the piece, using the nearby fragments of paper as a bridge. He retrieves the crayon, but falls after the land disintegrates under him. Hapihapitchi goes to rescue him, using her happy powers to create new land to land on. This, however, uses up her reserve of happiness and the two fall, landing on Kuchipatchi who was stretched by the others. With the crayon, Sister Otogitchi restores the door to Happy's house so he can go home to Lucky. As the land falls beneath them, Happy opens the door which returns the story back to normal. Outside, the paper tornado dies down and everyone that was affected by it poofs back to how they were. Lucky jumps to Happy and the two happily reunite as everyone cheers.

Unfortunately, their cheers are short lived once Mametchi notices Hapihapitchi on the ground dying. He realizes that she used up all her happiness on Happy and Kikitchi and that she would die without any happiness stored in her. Hapihapitchi then weakly gets up to fulfill her previous promise to Kikitchi and sprinkles happiness on him, falling down to the ground immobile afterwards. Kikitchi tearfully apologizes for being mean to her and Mametchi begs everyone to be happy so she can live. However, everyone is too upset by the situation to feel positive. Happy then walks up and offers to help them out like they did for him; he picks up Hapihapitchi and tells her that he is the happiest man in the world. Feeling Happy and Lucky's happiness, Hapihapitchi revives and everyone has a group hug. The gang then board the ship and wave goodbye as they exit the storybook.

Back in the real world, the citizens of Tamagotchi Town celebrate the return of the heroes. Kikitchi's parents hug Kikitchi and promise to make time for him from now on so he isn't lonely. Kikitchi then happily introduces his parents to his new friends as Hapihapitchi flies towards the screen.

During the ends credits, everyone is seen cleaning up the mess left by the paper tornado and the children of Tamagotchi School are seen enjoying the magical story books. In an after credits scene, the gang is at Mametchi's house enjoying the heart shaped fruits that have grown from Mametchi's fully grown Jolly Tree. Everyone then boards the Magical Flying Library Ship to have another storybook adventure.

• Tamagotchi: Happiest Story in the Universe! at IMDb