The Storytellers emerge to tell a fairy tale, which begins with Young Shrek leaving his family and home to go off into the world and grow up. He makes his new home in a swamp cut off from society and decides that his own company is all he needs in the opening number, “Big Bright Beautiful World.”

Shrek’s isolation is interrupted when the Captain of the Guards brings the Fairytale Characters who have been banished from the Kingdom of Duloc by Lord Farquaad and dumps them on Shrek’s swamp. The Fairytale Characters lament their lives, “Story Of My Life,” when Shrek returns from an errand to find his swamp full of outcasts. Shrek decides to find Farquaad and demand he remove the creatures from his home.

Upon reaching the pristine kingdom of Duloc, Shrek confronts Lord Farquaad and demands his swamp back. Farquaad offers a deal. If Shrek rescues Princess Fiona from her dragon-guarded tower, the banished fairytale character will be removed and Shrek’s home restored. With reluctant determination, Shrek accepts the quest and sets off to bring Fiona back to Duloc.

Meanwhile, in the dragon-guarded tower, Fiona is revealed by the Storytellers as they sing about the day they’ve been dreaming of, being rescued by a prince. “I Know It’s Today.” As Shrek approaches the tower and the dragon roars, Fiona realizes the day has arrived and runs to prepare herself for rescue. As they flee into the woods, Fiona celebrates Shrek’s Victory and asks him to reveal himself. When he takes off his knight’s helmet Fiona is shocked and disappointed and admits she expected someone different. Shrek reminds Fiona that she’ll meet the real person responsible for her rescue the next day. They talk, laugh and smile while the Storyteller secretly look on and notice a budding romance. As sunset grows near, Fiona flees to the barn to sleep.

As Shrek and Fiona near Duloc, three Storytellers reveal Fona’s secret. She is cursed to be one way by day and another by night, until true love’s kiss breaks the spell. Unaware that Shrek overhears her nighttime transformation into an ogre, Fiona confesses her fear that no one could every love someone so “hideous.” Misunderstanding her words, Shrek believes she is speaking about him. Hurt and defeated, he withdraws just as Lord Farquaad arrives to claim Fiona and announces that Shrek’s swap has been restored.

Left alone again, Shrek insists he’s better off by himself, but the fairytale characters challenge him. In the powerful anthem “Freak Flag,” they remind Shrek, and themselves, that what makes them different makes them strong. Inspired, Shrek rushes to Duloc to stop Fiona’s wedding.

Bursting in just in time, Shrek confesses his love and declares Fiona is his true love. They share a kiss, breaking the curse, but Fiona remains an ogre. At first confused, she soon realizes this is her true form. The entire company celebrates embracing who they are in “What Makes Us Special/I’m a Believer,” and the story ends with a joyful reminder that love isn’t about fitting a fairytale ideal, but rather it’s about finding someone who believes in you just as you are.