It’s evening in a suburban home a few miles outside Monstropolis. A woman asks her elderly father if he might want to read his grandson a bed time story. He enters the boy’s room where the grandson asks for various stories the grandfather has never heard of.

He asks the kid, “Don’t you want to hear about the three little monsters and the big bad Human, or Hazel and Grandel and the evil Human witch?” The boy explains that his teacher says old fairy tales like that paint humans in an unfair light.

The grandfather says those stories are important reminders of what terrible creatures the humans are. The mother argues that those stories are too scary anyway. “Too scary?” asks the grandfather. “We’re monsters. Scaring is what we’re all about!”

“Not anymore, Dad.” The mother pats her father on the shoulder and leads him from the room. “I’ll read the bedtime stories, okay? Maybe you should go get some rest too.”

The grandfather, Howard Snarls, goes to his room and throws a grumbling fit, shredding a newspaper with his claws. We see bits of the front page story fall to the floor. “Monsters Inc. trades growls for chuckles, One Year Later. “The only thing scary here,” states new CEO James P. Sullivan, “are the profits!”

We cut to Sully and Mike arguing over how to approach an off-screen problem. Mike is guiding Sully through his trusted and proven process, Sully arguing how it makes no sense, that it’s an impossible task. On final reveal we see Sully has put a diaper on Mike’s baby. It’s a snake-like creature with a big round ball like a belly. The baby hiss-laughs and its orb body shifts from hip to head. The diaper falls off.

“See,” says Mike. “You have to prepare for where it can go, not where it is.”

“At least it’s only one night,” says Sully. “How many diapers will I have to do in one night?”

Mike opens a closet packed with what looks to be three months supply of diapers and says, “Celia and I will pick up more on the way home. Just in case.” Sully faints.

Mike and Celia are dressed for a fancy night on the town talking about how Sully needs to get a companion and maybe some kids. Celia also expresses her doubts that he can handle their baby daughter for so many hours. Mike assures her he’ll be fine. They arrive at a fancy theater where they see protestors outside. Old monster Snarls is with them, protesting the new play that features a love story between a human and a monster.

Security is high, and Mike is told there’s no re-entry and they have to stay in their seats until the end of the show. Sully meanwhile is having trouble feeding the baby and calls Mike as soon as they’re seated. Celia is already frustrated. A comedy of errors occurs where Mike has to leave his seat to get better reception for Sully’s repeated calls and ends up dressed as an usher and then an actor on stage as he makes his way back to his seat.

Sully is forced to take the baby with him to the store to pick up special formula. He runs into a young female monster, Miranda, who we discover is a new colleague at Monsters Inc. She shows an obvious romantic interest in Sully, and together they are able to keep Mike’s baby safe until the Monster couple returns home.

The next day at Monsters Inc, protestors are on the steps of the facility. Snarls is there again, the group shouting that laughter is good medicine, not good power. Miranda visits Sully where they continue to flirt, and she asks why he never had a family. He says he just never made the time, but seeing what Mike has, a family isn’t off the table. He looks in a drawer of his desk where one of Boo’s drawings is hidden.

Miranda says Sully has to meet the right monster first. Outside, Snarls and the small group are getting frustrated that maybe their voices aren’t being heard. That’s when a sinister-looking monster shows up. His name is Theo Quills, and he agrees that this new relationship with humans and monsters isn’t right. He invites Snarls to his home where he shares ancient books which tell the origin of Monster/Human relations and how Monsters were run out of the human world and were so angered by it they actually began to feed off human fear.

Eventually, as monsters evolved, the fear energy was harnessed in different ways, but the core of that relationship stood, that is until the new CEO Sullivan took over. “Humans will never welcome monsters into their world,” says Quills. “They will never be friends.” Quills says he’s been preaching the same thing as Snarls for years, and no one has been willing to listen, but he’s got a plan. He says “It’s time monsters came out of hiding.”

We see the old monsters go on a public scare campaign to catch human attention and reignite the old rivalry. Miranda meanwhile is trying to sway Sully into returning to the fear approach for power collection. Looking at Boo’s drawing, he tells her how wrong it is to scare, and shares with her the story of how Boo once came to the monster world and changed his entire outlook.

Quills and Snarls make repeated visits to the human world, causing a more public scene each time. We get crossing news stories between the human and monster worlds, both about mysterious and unauthorized visits to the human world. While public perception in the monster world is worry over the criminal rebel monsters, the humans are dismissing the monsters as a viral hoax. Sam Gibbs, however, is one human man who believes the monsters are real.

Gibbs is repeatedly watching news footage of the monsters going into houses and never coming out. He’s sitting with a book nearby entitled ‘Magical Doorways and the Monsters Inside Them: Not a Metaphor.’

Sully is in a meeting with several business-looking monsters where the discussion is perhaps this is the beginning of a new era, one where monsters can openly interact with humans, and perhaps both worlds could benefit from a change in relationship. The concern is these monsters visiting the human world are the wrong representatives to send and they must be caught. Sully says the power plant is on high alert with security everywhere. They don’t know how anyone unauthorized is getting in. The others suggest that perhaps it is someone who IS authorized then. Sully mumbles to himself that it wouldn’t be the first time.

Quills and Snarls are arguing that their plan isn’t working, that monsters may only be capable of scaring human children. Quills says he has a new plan.

Sully is back at the power plant. It’s the afternoon, yet most everyone is gone for the day, except for Miranda. They discuss how the city council has compelled him to temporarily shut down the plant to keep all the doors closed until they catch the rebels. Miranda encourages him to check on Boo to make sure she’s okay and knows that those monsters scaring people in the real world aren’t like him, that he’ll protect her.

Sully pulls Boo’s door from storage and steps inside, but the décor is different. Her bed is gone and the room is sparse. When he moves further in, the closet door shuts behind him and metal bars block the door. Sully realizes he’s trapped in a giant cage. Gibbs reveals himself through a space between the bars. He says he’s been waiting for him and shows him a collection of Boo’s drawings featuring Sully.

“What did you do with Boo?” Sully shouts.

“If you mean Mary,” says Gibbs, “she’s safe and sound. You can’t hurt her again.”

It turns out that Gibbs is Boo’s father who obsessed over the idea of magic doorways when his young daughter disappeared for a day only to reappear in her room. Her only explanation, which she defended over and over, was that a big blue monster and his green ball friend looked after her in a magical monster world.

Cutting back to the power plant, Quills is inside turning everything back on. Miranda, who turns out to be his daughter, is there helping him. They power up dozens of doors and open them to the human world, letting humans wander in. A great panic ensues, sending monsters running for their lives. Mike tries to get into the plant to find out what’s happening and meets with Snarls who regrets what he’s done. He explains who is behind the invasion, and together they have to find a new way to Sully.

A great chaos of event unfurls with a showdown between Quills and Snarls, where Snarl’s grandson gets taken as hostage. Sully gets freed, and Boo helps Snarl’s grandson escape Quill who gets banished like Randall. They return all the humans and Sully has to say goodbye to Boo again. He says he can’t risk anything bad happening to his people or hers, and shreds all the doors and shuts down Monsters Inc.

In a final scene where he and Mike are working at the new redesigned power plant which runs on solar energy, Mike asks him if that really is the end of the ties between monsters and humans. Sully says he doesn’t want to give up hope. It’s just neither of their people are ready, but we shouldn’t give up. He quotes Mike saying, “You have to prepare for where it can go, not where it is.”