In the beginning of this movie, Mario and Luigi are watching the news. They find out that there are mysterious portals outside that can send you to a different planet or dimension. Mickey Mouse warns the Cute Mario Bros that a Blue Terror is coming to try to defeat them once and for all. Mario and Luigi begin Training to become instantly prepared. Afterwards, the doorbell rings and when Mario answers the door, he is face to face with The Blue Terror. The Blue Terror introduces and reveals himself. It's Gonzo! He starts taunting the Cute Mario Bros. on how he would easily defeat them. Luigi then steps up, and punches Gonzo with a semi-weak attack. Gonzo flees as later he walks around outside sadly, wishing he was stronger. He soon finds a liquid-black substance. Gonzo, being curious, decides to touch the black material. As soon as he touches it, the material covers him up, giving him new powers. While watching more of the news, the Bros. find out that the Blue Terror is in the woods, and go investigate.
As The Cute Mario Bros. explore the woods looking for clues, Luigi falls off a broken branch (although he is still sustained by his hat). Mario rushes to the rescue by creating 'bedding' underneath Luigi's determined drop. Luigi hits the safebed, but is in immediate pain due to a magical pinkish rock underneath. The rock is touched, and a portal forms right in its place, leaving the Bros. to only continue through it. Gameplay of the Super Mario Bros Deluxe (1985) would be recognizable as their Past.
We then revisit Gonzo, who has grown menacing facial details. He finds the exact same portal that The Cute Mario Bros. had gone through, and follows. Gonzo is teliported to the date where Find Yoshi! had first been launched on YouTube. Events (that had been slighty changed from the original video) show again, with then Gonzo stealing Yoshi. Yoshi soon attacks Luigi by command, but is broken out of his evil trance by Mario. Yoshi sends Gonzo back to the Present with a kick and Part 3 follows on.
Mario and Luigi return to the Present, and catch up to Gonzo. Kermit returns, but is killed by one of Gonzo's attacks. Mario and Luigi mourn over Kermit's death, but are still forced to defeat Gonzo. Within a series of distractions, the Bros are kidnapped, and are then awoken over a giant bowl of lava.. Mickey jumps into the scene, rescuing the Bros. And with the three of them, Gonzo is finally defeated, as he plummets back into his own trap.
After an undetermined amount of time, all of gang are seen at Kermit's Funeral, everyone is sobbing about the loss of their best friend while River Flows In You is playing the background. Everyone goes up and bid their farewells to Kermit, only to end up vomiting on his corpse due to a hatred of dead bodies. The camera pans out to the starry night sky as a constellation of Kermit forms with Mickey, Luigi and Mario speaking to one another on a nearby window sill.
The scene fades to black and then the last shots show Gonzo's hand rising from the lava pit, followed by a close up of one of his eyes opening, setting up the events for the next film. To Be Continued...
- The news on TV was fake.
- Gonzo's disguise when he first appeared in part 1 was a Phanto mask.
- The quality of the movie keeps changing from old-school to new-school.
- When Gonzo lands in the year 2007, the Find Yoshi segment is alternate, compared to the original version.