In 1912 Mobotropolis, a Mobian chipmunk girl named Sally and her pink hedgehog friend Amy Rose listen to Sally's mother read the story of Beauty and The Beast. Amy, a believer in true love, finds the story romantic; Sally declares she will never kiss a wild animal.
In 1926, Sally became a young aspiring chef working as a waitress for two local diners although she struggles to save enough money to start her restaurant. It is a bit difficult to raise all the money, a dream she shared with her father, Maximilian, who supposedly died in World War I.
Despite Prince Sonic of Christmas Island arriving in Mobotropolis to better his financial situation, he does nothing to improve it. After being cut off by his parents for being a philanderer and spendthrift, Sonic intends to marry a rich Mobian girl, and Amy is the perfect Mobian. Mr. Clay Rose, a rich sugar baron and Amy's father, hosts a masquerade ball in Sonic's honor. Amy hires Sally to make beignets for the ball, giving her enough money to buy an old sugar mill to convert into her restaurant. Meanwhile, Sonic and his valet, Mephiles, meet a witch doctor, Dr. Eggman. Inviting them into his emporium, Eggman convinces them that he can make their dreams come true, but neither gets what he expects: Sonic is transformed into a blue wolf while Mephiles, now recruited as Eggman's henchman, receives an emerald that gives him Sonic's appearance. Eggman intends for the transformed Mephiles to marry Amy, after which he will kill Clay and split his fortune with Mephiles, secretly giving himself the larger sum.
At the ball, Sally discovers she may lose the mill to a higher bidder. She then meets Sonic, who, believing her to be a princess because of her costume, asks her to kiss him and break Eggman's spell. In exchange for the money needed, Sally reluctantly accepts. Still, since she is not an actual princess, she is turned into a red wolf herself when she kisses Sonic, which also gives her the ability to talk to other animals. A chase ensues, and Sally and Sonic escape to a bayou. In the bayou, Sonic and Sally meet a trumpet-playing crocodile, Vector, who dreams of playing in a band with the other Mobians, but whose ferocious appearance prevents him from doing so. They also meet a Mobian named Razor the shark. Razor believes that the Evening Star is a Betta named "Coral," and is deeply in love with her; no one has the heart to tell him otherwise. Vector and Razor offer to lead Sally and Sonic to the Chao Queen, Tikal the Echidna, who they believe can undo the curse. During the journey, Sally and Sonic develop feelings for each other. Meanwhile, Eggman makes a deal with the Chaos spirits, offering them the souls of the Mobians of Mobotropolis; in exchange, the Chaos grant Eggman the services of a host of shadow spirits, whom he orders to find and capture Sonic.
When the four find Tikal after escaping from several of the spirits and a trio of bumbling wolf hunters, she tells them that Sonic must kiss a true princess to break the spell. They return to Mobotropolis to find Amy, the princess of the Mardi Gras Parade, but only until midnight. Sonic tells Razor he loves Sally and is willing to give up his dreams for her, but before he can, he is captured by the spirits and brought to Eggman. After Razor tells Sally that Sonic loves her, Sally goes to the parade to confess her love for Sonic, only to find Mephiles, still masquerading as Sonic, marrying Amy. Sally flees, heartbroken. Razor rescues the real Sonic and steals the emerald that disguises Mephiles, finds Sally, and gives her the emerald, explaining the deception. He then turns to hold off the spirits so she can escape but is mortally wounded by Eggman in the process. Eggman then offers to make Sally's restaurant dream come true in exchange for the emerald. Realizing she would rather be with Sonic and recognizing Eggman's true intentions, Sally destroys the emerald by smashing it on the ground. With Eggman's plan foiled, Sally watches the angered Chaos spirits drag Eggman and his shadow into the Chaos spirit world for his debts to them, with his frightened expression placed on a tombstone.
As Mephiles is taken away by the police, Sonic explains everything to Amy; Sally and Sonic reveal their love to each other. Amy agrees to kiss Sonic so he and Sally can be together as people, but the clock strikes midnight, and the kiss fails to work. The couple decides they are content to live together as wolves. Razor dies shortly after, and during his funeral, a new star appears next to Coral.
Sally and Sonic are married by Tikal and, because of Sally's new status as a princess, are both restored to Mobian form after their kiss. Later they return to Mobotropolis to legally marry and celebrate Amy betrothed with Sonic's second cousin, Shadow, in which they are both in love. Also, the opening of their new restaurant, with Vector playing in the band.
