As Sora, Donald, and Goofy approach a factory, they suddenly realize that they have turned into monsters. They observe that the factory has the slogan "We Scare Because We Care" on the front, making them worry that the inhabitants of this world could be dangerous. Inside, they see two monsters named James P. Sullivan (Sulley), the CEO of Monsters, Inc., and his assistant Mike Wazowski holding a little girl called Boo. Mike assures them that they aren't trying to scare her, and they notice that she seems happy with the two monsters, meaning that they may have gotten the wrong impression. Mike is surprised to see that they aren't afraid of humans, and they introduce themselves to each other. Some creatures appear and begin to attack them. The trio initially assumes them to be Heartless, but Sora notices the emblem on one of the creatures is different.
After they defeat the creatures, Donald and Goofy manage to recall what they were: Unversed, the creatures created by negative emotions, which Mickey fought over eleven years ago alongside Terra, Aqua, and Ventus. Realizing the danger, Mike and Sulley decide to take Boo back to her world through her door in the factory. As they make their way to the Laugh Floor, where all the doors are, Sulley explains that the company used to use scream energy, but then they discovered that laughter is much more efficient and ethical, so they switched to that. Unversed appear and begin to attack inside the various doors, they have to get rid of them first. After doing so, they begin to ride the doors to find Boo's, but little do they realize that they are being watched by Randall Boggs, Sulley's former competitor as a scarer.
While searching for Boo's door, they encounter some Heartless, forcing them to find their way to the door. They seem to find it, but it turns out to be a decoy created by Randall. Sulley explains that he once tried to collect screams forcibly, which resulted in his banishment through a door. Randall tells them that someone fixed his door, allowing him to return to the factory. He explains that his plan is to collect negative emotions and use them to collect energy, stating that the Unversed are there to get them for him. Though laughter may be more powerful, he says that negative emotions are more sustainable in the long term because if you can really crush someone's spirit, they will generate negative emotions for their entire life.
The group makes its way through the factory, which has been taken over by Randall, and encounters many traps that he has set up. Along the way, they use Boo's laugh energy whenever they encounter broken machinery. Randall reappears and says that he has a plan to eliminate them. He tries to order a machine to attack them, but it doesn't respond, much to his frustration. Randall flees, and the group continues onward. As they do, though, an Organization member appears and fills Randall's machine with black goo, turning it into an Unversed called the Lump of Horror. Meanwhile, Sora and friends encounter a huge fire in the factory, but CDA agents appear and offer to put it out. The Unversed make it difficult for them to do it alone, though, so everyone pitches in to help them. After dousing the fire, they take a pipe to reach the cooling tank, which lets them reach the door vault.
At the door vault, Randall confronts the group again. He unleashes the Lump of Horror on them, but they manage to defeat it. Sulley and Mike throw Randall back into the door he came from, and Sora locks it with his Keyblade to prevent him from returning, even if the door gets fixed again. They return to the Laugh Floor to put Boo back in her room, but the Organization member who created the Lump of Horror appears. He removes his hood to reveal himself as Vanitas, whom Sora recognizes from his visit to Notre Dame in the Sleeping Worlds. Vanitas explains that the negative energy of the surplus scream canisters, which were still in the factory from when they collected screams, enabled him to reconstruct his heart; still, even though he has been restored, Vanitas is incomplete. He reveals to Sora that Ven's heart has been inside of him for a long time, and now he plans to take it back. Vanitas prepares to attack Sora, but Sulley grabs him and throws him into a door. They throw that door into a door and repeat the process a few times before throwing the last door into a wood chipper. With Vanitas gone for the time being, Sulley takes Boo back to her room, and he and Mike bid farewell to their new friends.
After leaving Monstropolis and returning to the Gummi Ship, Ienzo calls Sora to tell him two things. Firstly, he explains that although Even is nowhere to be seen, he did manage to find some of his research on the Replica Program. Secondly, he managed to find some code left behind by Ansem the Wise which says that there are actually three hearts inside Sora besides his own. The first one, of course, is Roxas. The second heart has been inside of Sora for about as long, but the third has been there for much longer. Assuming that Vanitas was telling the truth, Sora realizes that one of the hearts must be Ven's, but they have no clue who the other one could be.
Afterwards, we finally get to see what happened to Aqua after the "Blank Points" scene from Birth by Sleep Final Mix. She felt a connection between the beach of the Dark Margin and Destiny Islands due to Sora and Riku, who were briefly banished there after their fight with Xemnas. Aqua told Ansem the Wise, who was still on the beach with her, that she decided to stay on the beach and wait, knowing that someone would come for her. Ansem the Wise said that she may be right; if the two of them were able to meet there, then it would certainly be possible for someone else to arrive as well.
Back in the present, Aqua and Ansem the Wise are confronted by Ansem, Seeker of Darkness, whom Ansem the Wise recognizes as his apprentice Xehanort. Ansem SoD asks his former master about a girl that he experimented on while he was still the ruler of Radiant Garden, saying that he wants to find the girl's memories. When Ansem the Wise refuses to answer, Ansem SoD tries to use force on him, but Aqua gets in the way. She attempts to fight without her Keyblade, but his Guardian easily overpowers her. Realizing the situation is hopeless, Ansem the Wise agrees to go with him. Before leaving, Ansem SoD has the Guardian attack Aqua again, knocking her into the waters beyond the Dark Margin. As she falls into the dark water, the power of darkness begins to overtake Aqua until it completely consumes her. The two Ansems then leave to find research about the girl.
Back on board the Gummi Ship, Chip and Dale call Sora and tell him that Merlin wishes to speak with him. They find the wizard outside the bistro in Twilight Town, where he shows them Winnie the Pooh's story book, which no longer has Sora's image on it. He goes inside the book to investigate, but nothing seems out of the ordinary. Sora meets a new resident of the 100-Acre Wood, a Heffalump named Lumpy as well. Rabbit explains to everyone that he needs help harvesting his crops, so they all pitch in to assist him. After they help him with his vegetable and fruit patches, Rabbit has Sora help him plant a bunch of flowers to attract bees, allowing them to collect honey for Pooh.
After helping with the flowers, Rabbit prepares a pot of honey for Pooh to eat. After eating it, Pooh tells Sora that something strange happened. The last time he came to the 100-Acre Wood, Sora told Pooh that he would always be in his heart, but now Pooh says that Sora is no longer there. Sora tries to reassure him that they will always be together, but on the inside he can feel that their connection has grown weaker. Despite his worries, he still assures Pooh that they will always be together before leaving. Back in Twilight Town, Sora's picture reappears on the book. He explains what happened to Donald, Goofy, and Merlin, saying that he fears he could be separated from his friends. Merlin assures him that no matter what happens, he will be able to find a way back somehow. Seeing his image on the book cheers Sora up, but the mystery of his connection to Pooh weakening remains unsolved. Since there is nothing else they can do, the trio has no choice but to leave Pooh be and make their way to the next world...
