Donkey, Puss and the Fairy Tale creatures storm to the castle with Shrek following on Mongo a giant gingerbread man that the Muffin Man made for him. They rescue Shrek and he and Gingy pay a visit to the Muffin Man. Shrek then leaves with is friends and they ride off to the stop Fairy God Mother's plans but they are arrested and the news report covering there arrest is seen by Shreks fairy tale friends, the Big Bad Wolf, Gingy, the three blind mice, Pinocchio and the three Little Pigs who then rush to their rescue. Shrek gets to the castle where Fairy God Mother tells him that Fiona doesn't need Shrek anymore and Shrek sees that she is with Prince Charming now (this is because Charming claimed that he was Shrek and that his differet voice and actions were effects of the potion.) Shrek, Puss and Donkey leave the castle and go to the Poison Apple restaurant where Shrek discovers the Fairy God Mother is Charming's mother and that she is forcing Fiona to fall in love with him. Shrek and Puss ride off on Donkey towards the castle where Fiona has reverted back to her human form. The potion has worked on Donkey too and he is now a beautiful white stallion. When they wake up they are surrounded by woman who keep saying that Shrek is handsome he looks at himself in the mirror and sees that the potion has worked. The trio then make there way to a barn house to get out of the oncoming storm where they pass out. After they walk away the mushroom begins to glow and turns into a rose. Shrek then pours the rest of it on a mushroom and the trio walks away discouraged. The potion has the same effect on Shrek but with more gas. Nothing happens and Shrek takes a drink thinking that it probably doesn't work on Donkeys. Donkey however becomes jealous and takes the potion and drinks some of it. Shrek then wants to drink the potion but Puss wants to test it first in order to repay his debt to Shrek. The trio then disguises themselves as employees at Fairy God Mother's potion factory and steal a beauty potion causing much chaos in the process. Fairy God Mother however doesn't believe in ogre having happily ever afters and sends them away.
Shrek decides to go to Fairy God Mother because he wants to be handsome so Fiona's father will accept him. Puss in Boots attacks the duo but soon becomes friends with Shrek after Shrek saves him from choking. Harold sends Shrek and Donkey on a scavenger hunt which is actually a trap. Harold however is upset (because if Fiona doesn't marry Prince Charming Fairy God Mother will turn him back into a frog) and hire an ogre hit man (Puss in Boots) to kill Shrek. When Shrek and Fiona finally arrive in Harold's kingdom Far Far Away the King and Queen are shocked to see Fiona (now an ogre) married to an ogre (Shrek.) Queen Lillian accepts the fact that her daughter is married to an ogre because she sees that she is happily in love. Shrek doesn't want to go but Donkey and Fiona finally convince him. Shrek and Fiona return from the honeymoon to find that Fiona's father King Harold wants to meet them and give them his blessing.
Shrek and Donkey then go on a journey to save Fiona and Shrek whom Shrek ends up marrying at the end of the film. Farquad tells Shrek that he will move all of the Fairy Tale Creatures from his swamp if he rescues the Princess Fiona from a dragon guarded tower. Shrek and Donkey go off to Duloc to find Lord Farquad which they do.
Soon his house and swamp is full of Fairy Tale Creatures and they tell Shrek that the evil Lord Farquad forced them to come here. Shrek responds by making him sleep outside. He later meets and saves Donkey from some soldiers and Donkey follows him home and says that everybody needs friends.