The film is set in 1488, six years after the events and the death of Doctor Julian Robotnik. Captain Silver serves as Mobotropolis Captain of the Guard under the King of Mobotropolis. Silver and Blaze are now married and have become the parents of a five-year-old son named Lightning, a white hedgehog with a few purple quills. Sonic is now an accepted part of society; though he still lives in Mobotropoliswith his Mobian friend's Tails, Knuckles, and Shadow as the cathedral's bellringer.
A circus troupe led by Drago the Wolf enters town as part of "The Day of Love",a day dedicated to the celebration of strong and pure romantic love. Drago is secretly a master criminal who plans to steal Mobotropolis's most beloved bell, La Fidèle, the inside of which is decorated with beige gold and enormous jewels. He sends Sally Acorn, an aspiring trapeze Mobian chipmunk girl in his troupe, to discover the whereabouts of La Fidèle.
Sally encounters Sonic without seeing his face, and the two of them initially get along quite well. Once Sonic actually sees his face, she is shocked at his Werehog appearance and runs away from him. His Mobian friends convince him to go to the circus to see her again. At the circus, Drago captures the audience's attention by making an elephant disappear, while his associates steal from the audience. He pressures Sally to follow Sonic and obtain the information he needs for his plans. When Sally disagrees with this mission, Drago reminds her of her past and of the loyalty she owes him: when she was six years old, Sally was an orphaned thief who was caught trying to steal coins from Drago. He could have turned her over to the authorities or even Robotnik; instead, Drago took her under his wing and decided to employ her in his circus.
Sally reluctantly takes the mission to win Sonic's trust. After observing Sonic fondly playing with Lightning around town and letting the boy sleep in his arms, Sally realizes the Werehog's true nature and ceases to be frightened by his appearance. Sonic takes her sight-seeing around Mobotropolis. A thunderstorm and the rain force them to end their date and return to Mobotropolis. Sonic takes the opportunity to offer Sally a gift, a figurine in her own image which he created himself earlier in the film. A sincerely touched Sally kisses him on the forehead and leaves. Sonic soon realizes that he has fallen in love with her.
Meanwhile, Silver is investigating reports about robberies in his city. He suspects that the circus is responsible for the crime spree and confides to his family and friends, but Blaze expresses her belief that Silver is motivated by his own prejudice. Elsewhere, Drago instructs Sally to keep Sonic preoccupied while the circus steals La Fidèle. However, Sally has come to genuinely care for Sonic and protests, so Drago threatens to have Sonic killed if she refuses. Silver eventually questions Drago about the robberies, and finds a stolen jewel in his possession. To avoid being arrested, Drago claims that Sally is a lifelong thief and that he is covering for her crimes. Silver seems to believe him.
Later, while Sonic is out with Sally, Drago and two of his subordinates sneak into the cathedral, stealing La Fidèle. The three Mobi try to stop the thieves, but end up trapped under another bell; Tails still sounds the bell and alerts everyone that something is amiss at the cathedral. Hearing the sound, Sonic and Sally rush back. When the Archdeacon informs everyone that La Fidèle has been stolen, the king claims that if they do not find the bell, the festival will be ruined. Silver realizes that Drago has played him for a fool. He sends the soldiers all over Mobotropolis to find Drago . Due to some confusion, Sonic realizes that his beloved Sally has deceived him (despite her pleas that she did not intend to) and angrily breaks off their relationship. He retreats deeper into the cathedral, feeling heartbroken and betrayed.
Silver has his guards arrest Sally for her involvement in the theft. The Mobians soon inform Sonic that Lightning has left to pursue Drago. He passes the information on to Blaze and Silver, who now have personal reasons to locate the master criminal. Sally, now a prisoner of Silver, informs them that Drago has taken the missing bell to the Catacombs and tries to explain the secrets behind her former master's tricks and illusions. Silver decides to search around the catacombs, and brings Sally with him. In the Catacombs, the search party encounter Blaze's pet goat, who leads them to Drago and Lightning. Drago has taken the boy hostage and blackmails Silver into opening a gate for him. Sally uses her high-wire skills to rescue Lightning and reunite him with his parents. With no leverage against his pursuers, Drago and his group of criminals are arrested, and the missing bell is recovered.
The festival can finally take place. Lobo finally wins the heart of Lupe, his longtime crush. A number of romantic couples, including Silver and Blaze, proclaim their love for each other while Sonic rings the restored La Fidèle. The bell falls silent when a released Sally joins Sonic in the bell tower. The two of them admit their own love for each other and share their first romantic kiss. As the film ends, Lightning takes over the ringing of La Fidèle.
