Cartman has the majority of the male students of his class out in the woods searching for a Leprechaun he supposedly saw run by the area three days in a row. Like usual, Kyle doesn't believe him though Cartman is determined in what he saw and has convinced most of the other boys of it as well. Cartman (Codename Dragon Wind) contacts Clyde Donovan (Codename Hawk Eye's) with his walkie talkie, who with some other boys are putting up a net. Then he contacts Token Black (Codename Blackie) who is setting up diversion traps and then Butters Stotch (Codename Faggot) who is in the tree's keeping a look out. Kyle tries to get everyone to listen to sense, and to tell them that Cartman was only doing this so that he could get out of a deal in which if he couldn't prove there was a Leprechaun he would give Kyle ten dollars, but if he could Kyle would have to suck his balls. Butter's sees something though, and Token sets off the Diversion trap to lure the Leprechaun out into the open.
It turns out to be a real Leprechaun and the boys give chase. The Leprechaun dodges the net but runs into a cage hidden in the bushes. Cartman demands that the Leprechaun tell him where his gold is or else he dies, but the Leprechaun teleports out of the cage. He tells the boys he was supposed to warn of a Terrorist attack but they made him late before teleporting away. Cartman then shows the contract that Kyle signed saying if he could prove there was a Leprechaun, then he would have to suck his balls, leaving Kyle speechless. Later that night at Kyle's home, Cartman arrives while the Broflovski family is eating dinner so that Kyle could 'fulfill his end of the bargain', though Kyle refuses to do so.
The next day Stan Marsh, Kenny McCormick, Butters and Jimmy Valmer are building a snow fort when Kyle shows up, telling them he won't suck Cartman's balls and that Leprechauns aren't real despite what he saw. A man then comes asking them if they have seen a Leprechaun, and takes them onto his 'imagination flying machine' to tell them the truth about the Leprechaun.
He flies them to Imaginationland, where all the imaginary critters and people ever imagined live. The inhabitants of Imaginationland gather around the boys to hear what information the Leprechaun gave them. Before they can tell them though, a Terrorist runs into the crowd and blows himself up, killing many of the Imaginary beings. More terrorists arrive and the boys escape on a Dragon's back, all except Butters who is left behind and beaten up by the Terrorists.
After opening his eyes, realizing that he is back home, Kyle then wakes up, and believes he has been dreaming and sighs in relief that he doesn't have to suck Cartman's balls anyway, without memory that he was in Imaginationland. He phones Stan who tells him of a dream he had the night before. Having experienced the same things, he finishes off the dream. Just then, Sharon Marsh enters the room with Stephen Stotch and Linda Stotch who ask if Stan has seen Butters. Kyle is shocked to hear all this from the other end of the phone line.
At the Pentagon, a military leader talks to his audience explaining of the attack on the imagination of everyone. He then broadcasts a video terrorists sent which features Butters reading out a statement that was written for him. At court, Cartman has took up his case against Kyle who will not suck his balls. The judge declares that if Kyle does not suck Cartman's balls within the next 24 hours, he will be arrested.
At the Pentagon, the military leader and his team have invited in Holiday film makers who are imaginative and can help. The first film maker, M. Night Shyamalan is no help who can only think of bizarre plot twists that have nothing to do with the events happening. Michael Bay is no help either, as he can only think of explosive action scenes and over-the-top special effects. Mel Gibson however, despite being as perverted and psychotic as always, manages to think of an idea - they should review the video and see if anyone in it is not fictional or imaginary. Doing so, they realize Butters isn't a fictional character. The military leader explains they need to find out who he is, where he lives and who his friends are.
In Imaginationland, the surviving residents question what the terrorists are doing to Rockety Rocket. They realize he is going to break down the barrier that borders off the evil side of Imaginationland. The strange man tells Butters he must think of a way to save them.
Cartman is holding a party, because Kyle has to suck his balls. Craig says Kyle won't show up, but Clyde alerts them that Kyle is coming up the path. As he prepares to suck Cartman's balls, he and Stan are taken away in a military helicopter, to the anger and anguish of Cartman. He runs after them all, screaming.
In Imaginationland, Butters attempts to stop the terrorists with a speech, but it fails and the terrorists successfully use Rockety Rocket to destroy the barrier. The terrorists rejoice as the evil prepares to emerge. Cartman meanwhile has been picked up in a truck by a man who tells Cartman its dangerous for him to be hitchhiking. Cartman explains that when a man's been robbed - he no longer cares about danger. He then takes out a picture of Kyle, and lustfully wipes the picture of Kyle's mouth with his finger.
This episode, along with the other two parts of the trilogy, won a 2008 Emmy Award in the category of "Outstanding Animated Program (for programming one hour or more)". This is the first and only time the show has been nominated for this particular award category, as well as the show's third overall Emmy Award.