With Tottington Hall's annual Giant Vegetable Competition nearing, the townspeople are eager to protect their vegetables from thieving rabbits. To cash in on this, Wallace and his mute dog Gromit have become pest control and run the security protecting the town's vegetables, calling themselves Anti-Pesto. However, the growing number of captured rabbits prove too hard to contain for the two. Wallace responds by attempting to use his new machine to brainwash the rabbits into disliking vegetables. However, during the operation, Wallace kicks a lever, causing a rabbit to become fused to his head and forcing Gromit to destroy the machine. The failure results in the rabbit transforming into a larger, more intelligent animal that Wallace dubs Hutch.
That night, the town is plagued by the "Were-Rabbit", a massive, rabbit-like creature that preys on the town's vegetables. During the town meeting that follows, Victor Quartermaine, Wallace's rival for the affections of Lady Tottington, suggests that he kill the animal. Lady Tottington refuses and gives Wallace and Gromit the opportunity to capture the Were-Rabbit instead. The two attempt to capture the Were-Rabbit during the night, but this results in failure. Afterwards, Wallace comes to the conclusion that Hutch is the Were-Rabbit and secures him in the house so that he cannot escape. As Wallace leaves to inform Lady Tottington, Gromit realizes that Wallace is the Were-Rabbit, suffering from the previous accident with the machine. Gromit arrives at Tottington Hall and retrieves Wallace before the sun sets.
In the forest, Wallace and Gromit are cornered by Victor and his dog, Phillip. Victor challenges Wallace to a fight for Lady Tottington's affections, but the full moon rises and Wallace transforms into the Were-Rabbit, horrifying Victor. As Wallace and Gromit flee, Victor seeks out Reverend Clement Hedges, who gives Victor three golden bullets, supposedly the only thing capable of killing the Were-Rabbit. The following morning, on the ay of the competition, Lady Tottington reluctantly gives Victor permission to shoot the Were-Rabbit. Lady Tottington arrives at Wallace's house to inform him of Victor's plan, but Wallace begins to transform and drives Tottington away.
Victor and Phillip arrive at Wallace's house to kill him, but Gromit manages to lure Wallace out of the house with a female Were-Rabbit marionette. Victor, mistaking the marionette for Wallace, shoots it. Victor and Phillip imprison Gromit and leave for the competition to dispose of Wallace. However, Gromit manages to escape with Hutch's help and decides to use the marrow as bait. Gromit and Hutch arrive at the competition just as Wallace, in Were-Rabbit form, arrives and causes mass chaos. Victor runs out of golden bullets and takes Lady Tottington's Golden Carrot award to compensate. Wallace grabs Lady Tottington and flees into Tottington Hall, pursued by an angry mob.
Victor follows Wallace and Tottington to the rooftops and inadvertently reveals that he knew the Were-Rabbit's true identity. As Victor pursues Wallace through the rooftops, Gromit and Phillip battle each other, flying on biplanes. Eventually, Phillip's biplane is destroyed, but he hijacks Gromit's plane and continues their confrontation, culminating in Phillip plummeting off the biplane. Victor finally corners Wallace and fires at him, but Gromit intercepts the bullet, saving Wallace. However, Gromit's biplane is damaged and begins to descend out of the air, and Wallace sacrifices himself to break Gromit's fall, severely injuring himself in the process. Victor gloats, but Lady Tottington knocks him unconscious and causes him to plummet off the rooftops and into the tent. Gromit then disguises an unconscious Victor in the female Were-Rabbit marionette, and the mob confuses Victor for the monster and chases him off.
Wallace supposedly dies of his injuries, morphing back into his human form. Gromit, Tottington, and the rabbits mourn Wallace's supposed demise, but he awakens soon afterwards after being revived by a slice of cheese. Wallace is afterwards rewarded the Golden Carrot award, and Tottington Hall is turned into a wildlife sanctuary where the rabbits, including Hutch, can live in peace.
- Peter Sallis as Wallace/Hutch.
- Ralph Fiennes as Victor Quartermaine.
- Helena Bonham Carter and Lady Campanula Tottington.
- Peter Kay as PC Mackintosh.
- Nicholas Smith as Clement Hedges.
- Liz Smith as Mrs. Mulch.
- John Thomson as Mr. Windfall.
- Mark Gatiss as Miss Blight.
- Vincent Ebrahim as Mr. Caliche.
- Geraldine McEwan as Miss Thripp.
- Edward Kelsey as Mr. Growbag.
- Dicken Ashworth as Mr. Mulch.
- Robert Horvath as Mr. Dibber.
- Pete Atkin as Mr. Crock.
- Noni Lewis as Mrs. Girdling.
- Ben Whitehead as Mr. Leaching.