A little girl falls asleep while reading a fairy tale about a dragon that held a princess captive in a castle. Her stuffed toys—a boy doll, a horse, and a dog, all made of calico—are profoundly moved by this story and vow to save the princess. The doll mounts the horse and uses a candy cane for a spear. They charge off into a land of calico, where they encounter various adorable calico animals before finally having to do battle with the calico dragon.
- All Just a Dream: Sure enough, the story is a dream the little girl had after falling asleep while reading her story.
- Call-Back: The dragon's tongue unrolls in a manner peculiarly like a party horn. The ending reveals that the girl is actually dreaming about how the curtains of her window look like when the wind is blowing in.
- Eat Me: The dog finally gets the calico dragon to eat it, whereupon it busts out the other side with one of the dragon's tongues in tow. The dog uses the tongue to defeat the dragon.
- Getting Crap Past the Radar: The little girl, oddly, seems to dream about underwear a lot. The three toys cross a stream by walking over a bridge that's actually a corset. Baby birds are nesting in the cups of a bra hanging in a tree. And the castle that the dragon lives in is actually a folded-up "union suit" (one of those old-timey one-piece pajamas with a flap in the back where your butt is).
- Living Toys: The toys come to life and go charging off to fight a dragon.
- Multiple Head Case: The calico dragon has three heads, which like to talk with each other.
- Narrator: A singing narrator that sings about the "three brave little comrades" going off to fight a dragon.
- Puppy-Dog Eyes: The girl has big round cute eyes.
- Villain Song: The dragon makes its entrance with a song talking about how it likes to eat people.