In a world populated by anthropomorphic animals, a koala named Buster Moon (Matthew McConaughey) works to keep his theater from closing down. To this end, Buster and his sheep friend Eddie (John C. Reilly) hold a singing contest to raise money, and the entire town auditions for a part in the show. The leading five are an overworked pig named Rosita (Reese Witherspoon) with her pig partner named Gunter (Nick Kroll), an arrogant and gambling white mouse named Mike (Seth MacFarlane), a punk-rock porcupine named Ash (Scarlett Johansson), a timid teenage elephant named Meena (Tori Kelly), and a British gorilla named Johnny (Taron Egerton), who wants to sing instead of following his father's criminal footsteps.

Buster Moon has dreams of taking his musical production of Alice in Wonderland to Redshore City ("the entertainment capital of the world!"). He and the main cast visit the office of media mogul Jimmy Crystal (Bobby Cannavale), a Godfather-like promoter, but fail to impress him. On a whim, Gunter offers his idea of creating a space musical featuring the music of recluse rock star Clay Calloway (Bono), which piques Jimmy's interest. Buster wants to feature Rosita as the star, but during rehearsals she discovers she has a fear of heights and has to surrender the role to Jimmy's daughter Porsha (Halsey). Meanwhile, Buster is trying to convince Clay to perform in the production, but Clay refuses. Johnny, a singer, is told he will dance in his act and is paired with choreographer Klaus Kickenklober (Adam Buxton) who nearly drives him from the show. Meena is paired with veteran stage performer Darius (Eric André) but can't find the inspiration for her part. Buster wants to return Rosita to her starring role, and in meeting with Porsha gives her the wrong impression that she's been fired. She returns to her father who goes out of control with rage and threatens to kill Buster. Ash convinces Clay to perform with them, but with the show canceled, it seems there's nothing left for them in Redshore City. Then Buster decides to take the biggest gamble of his life.