An American boy turns out to be the heir of a wealthy British earl. He is sent to live with the irritable and unsentimental aristocrat, his grandfather.
Ollie Dee and Stannie Dum try to borrow money from their employer, the toymaker, to pay off the mortgage on Mother Peep's shoe and keep it and Little Bo Peep from the clutches of the evil Barnaby. When that fails, they trick Barnaby, enraging him.
The schoolchildren lost their last teacher because she got married and quit her job. When the brother of their teacher Miss Crabtree comes to visit, the children mistake him for a suitor. The children tell abominable lies about Miss Crabtree to try to discourage the man. Meanwhile, one of the children is selling answers to the upcoming oral exam. Unfortunately for the students, the young entrepreneur used a book of minstrelsy and blackface as his source for the "answers".
Peter Pan enters the nursery of the Darling children and, with the help of fairy dust, leads them off to Never Never Land, where they meet the nefarious Captain Hook.