The movie opens with an action sequence set in the Wild West where Woody, Buzz and Jessie try to stop One-Eyed Bart and One-Eyed Betty (played by Mr. and Mrs. Potato Head) from robbing a train. The film shows a montage of Andy playing with his toys before cutting to black. The film cuts to ten years later where Andy is now 17 years old and getting ready for college. He has not played with his toys in years, and most of them have been sold or given away. Woody, Buzz, Jessie, Bullseye, Rex, Slinky, Hamm, Mr. and Mrs. Potato Head, the three Aliens, and three toy soldiers are the only ones remaining.
The toys place Andy's phone in the toy box and call it, hoping that Andy will give them attention. When that fails, the toys accept their days with Andy are limited and they will be put in the attic. The three army men parachute out the window, accepting their mission with Andy is done and wanting to avoid being thrown away. Andy places all of his toys except Woody, who he plans to take to college with him, in a trash bag. He plans to put the bag in the attic, but leaves the bag containing his toys in the hallway to help his sister Molly, and his mother accidentally takes the bag to the curb, thinking it's trash. (Incidentally, the garbage man who picks them up? That's Sid.)
The toys narrowly escape from the garbage truck, and, believing Andy deliberately threw them away, get into a donation box in Andy's mother's car with Molly's old Barbie doll. Woody follows in an attempt to bring them back, but is unable to convince the others of Andy's real intentions, and goes along when Andy's mother takes the box of donations to Sunnyside Daycare.
At Sunnyside, Andy's toys are welcomed by the other toys, which includes the leader Lots-o'-Huggin' Bear (or "Lotso"), his assistant Big Baby, and a Ken doll, who falls in love with Molly's Barbie who returns his feelings. The toys are keen on starting a new life at the daycare, except for Woody, who thinks that the toys shouldn't turn their back on Andy so quickly.
Woody tries to persuade the others to return to Andy, telling them that they should be there for him even if that means waiting in the attic. However the other toys tell Woody that he needs to accept that their life with Andy is over. Woody attempts to return home, but is instead found by a child named Bonnie, whose mom works for Sunnyside. Bonnie brings Woody home and plays with him and her other toys. Although Woody enjoys being played with again, he is still desperate to continue his search for Andy.
Back at Sunnyside, Andy's toys find the children in the Caterpillar Room to be not age-appropriate to play with them. After the children have gone home, the toys are left dirty, bent out of shape and quite despondent. Buzz goes to talk to Lotso about transferring them to the Butterfly Room with the more sensible, older children. However, Lotso only offers a transfer for Buzz himself. Buzz refuses, stating that they're a family and they stick together. Lotso switches Buzz to his original demo mode factory settings, causing him to believe himself to be an actual space ranger under Lotso's command. Mrs. Potato Head sees Andy searching for his toys through an eye she lost in Andy's room. The toys try to escape but are imprisoned by a brainwashed Buzz.
Woody discovers that Bonnie's house is around the corner from Andy's. When Bonnie's toys discover he escaped from Sunnyside, they introduce him to Chuckles. Chuckles, Lotso and Big Baby used to be owned by a girl named Daisy, but the toys got lost during a road trip. They made their way back to Daisy's house, but find she has a new Lotso toy. Lotso went insane at the sight of this and told Chuckles and Big Baby that they'd all been replaced (when in reality, only Lotso had) and forced them to leave. They rode a truck to Sunnyside, where Lotso took over, turning it into a toy prison. Chuckles was eventually broken and later found by Bonnie.
Woody returns to Sunnyside inside Bonnie's backpack. He sneakily reaches his friends and tells them he's sorry for leaving them. They quickly formulate an escape plan through the trash chute with the help of the Chatter Telephone. Woody and Slinky incapacitate Lotso's night watchman, a cymbal-banging monkey toy. While Mr. Potato Head provides a diversion, they make their escape. During the escape, the reset Buzz is captured and held down by the toys. They attempt to fix him, but accidentally reset him into Spanish mode.
They make it to the garbage chute, but are confronted by Lotso, who tortured Chatter into informing him of the escape plan. Lotso threatens to push the toys into the dumpster if they don't return to the Caterpillar room. Woody reveals Lotso's deception about Daisy to Big Baby, who angrily throws Lotso into the dumpster. As a garbage truck approaches, the toys try to leave, but Lotso pulls Woody into the dumpster. The rest of Andy's toys jump after him as the truck arrives, and all fall inside.
A TV falls on Buzz, resetting him to his normal self with no memory of what happened to him. The toys find themselves at the Tri-County Landfill, where the Aliens notice a large crane in the distance and proceed to venture off toward it before being swept away by a garbage truck. The rest of the toys are dumped onto a long conveyor belt of garbage heading towards a set of shredders. They manage to avoid the shredders, including Lotso, who is helped to safety by Woody and Buzz maintaining their stance that no toy will be left behind. They see an upcoming incinerator and try to run away. Lotso notices an emergency shutoff switch at the top of a ladder, and with Woody's and Buzz's help, manages to reach it. However, rather than shutting off the belt, Lotso walks away and leaves them to die. The toys fall into the incinerator and try to escape before ultimately holding hands and closing their eyes as their await their fate. Just then, the aliens rescue them with the giant crane.
Lotso finds himself strapped to the front of another truck by a garbage man, who once had a Lots-o'-Huggin' Bear toy when he was a kid. Deciding that the attic isn't such a bad place to be sent, the toys manage to return to Andy's room undetected, where they clean themselves off with a hose and pack themselves into a box labeled "Attic." They say goodbye to Woody, wishing him a good time at college with Andy. However, when Woody sees Mrs. Davis crying over the thought of missing Andy, he ultimately decides he can't allow his friends to be sent to the attic. He writes Andy a note suggesting that he gives the toys to Bonnie, who he knows will play with and take good care of them. Andy discovers the box and finds the note, assuming it was from his mom.
Andy introduces the toys individually to Bonnie and is surprised to find Woody at the bottom of the donation box. Bonnie recognizes him, and though initially hesitant, Andy passes Woody on to her, and they play together before he leaves. Woody and the other toys witness Andy's departure as they begin their new lives with Bonnie. Woody says "So Long, Partner" as Andy drives off, and starts to introduce his friends to Bonnie's toys.
The end credits show that life at Sunnyside is now far better under the supervision of Ken and Barbie. All of the toys take turns between the Caterpillar and Butterfly Room, and no toy is left in the Caterpillar Room too long. Emperor Zurg and the three Army Men are also seen landing in Sunnyside and receive a warm welcome from the residents. Ken and Barbie also keep in touch with the toys living at Bonnie's through letters hidden in her bag, as it is shown that Woody and the others have fully settled in with Bonnie's other toys and are enjoying their new life together.
