For 20 years, Harry Dunne (Jeff Daniels) has been going to the Baldy View Mental Hospital to visit his best friend Lloyd Christmas (Jim Carrey). He's been committed ever since his doomed romance with Mary Swanson (aka Samsonite). Harry changes Lloyd's waste bag and tells him that he has a medical condition that he's been suffering from. Harry turns to leave when Lloyd begins to mutter something. Harry leans in, only for Lloyd to shout "GOT YA!" Harry realizes Lloyd has spent the last two decades in the loony bin for a gag...and Harry thinks it's awesome. Lloyd decides to leave with Harry, but first they need to take out his catheter. Harry insists on removing it himself, and then he calls upon two gardeners to help.
Harry brings Lloyd back to their old apartment. Sitting outside is Billy (Brady Bluhm), the blind neighbor boy that Harry and Lloyd previously sold a dead bird to. Billy is surrounded by a variety of pet birds and he knows the guys are near him as they try to feed his birds candy. When they get into their apartment, Harry introduces Lloyd to his pet cat Butthole and his roommate Ice Pick (Bill Murray), a guy who makes crystal meth, but Harry thinks is just good rock candy. He sits Lloyd down and tells him about his medical issue, and that is one of his kidneys is bad. He needs a donor soon.
The two decide to go to Harry's old home...which is right down the street from the apartment. We see his parents are Asian, though Harry does not realize that he's adopted, and therefore cannot get a kidney from them. On their way out, Harry's dad gives him his mail that's been piling up since 1991. One of them is a postcard from his old girlfriend Fraida Felcher. It says that she's pregnant and she needs Harry to call her.
Without any idea where to find Fraida, Harry and Lloyd go to the home of their high school friend Pete Stainer (aka Pee Stain), who introduced Harry to Fraida. Lloyd obnoxiously rings the Stainers' doorbell repeatedly to wake up Pete's parents, only to find out that Pete is dead...from a motorcycle accident Lloyd already knew about, although he though Pete pulled through since his obituary said he was "survived by his parents". Harry then realizes that he met Fraida because she worked at a funeral parlor where they did Pete's service.
The two track Fraida (Kathleen Turner) down at her family's parlor. She is older and significantly less attractive to the guys than they remember her, but they know it's her from a smiley tattoo above her butt (which has since drooped to a frowny face). Fraida admits that she had a daughter named Fanny that she gave up for adoption. She immediately regretted it but it was too late for her to change her mind. She wrote her a letter, only for it to be sent back and noted to never contact her again. With no way to find the girl, Lloyd declares this a lost cause, until Fraida shows him and Harry a picture of the girl that she found online. She's really pretty and Lloyd instantly falls for her and decides they can definitely track her down.
The guys take a Hearse from the parlor and drive to Rhode Island to find Harry's daughter...only to be led to Fraida's home because they followed the return address on the letter, and not the address that Fraida mailed it to. They stay in a hotel for the night before going off the next day. Harry then realizes that he doesn't have anyone to feed Butthole with Ice Pick not being home, but Lloyd says he took care of it by leaving the cat with Billy in his apartment with his entire collection of birds. Cut to Billy entering his apartment with his parrot and not realizing Butthole mauled and ate all the birds.
We move to the home of Dr. Bernard Pinchelow (Steve Tom) and his second wife Adele (Laurie Holden). Bernard is the adoptive father of Fanny, who has been living as Penny (Rachel Melvin). Penny turns out to be just as dumb as both Harry and Lloyd. She is going off to a KEN Convention in El Paso, Texas to give a speech on her father's life work, and he gives her a package to be given to one of the doctors at the convention. Penny ends up forgetting the package, along with her phone.
Adele is secretly trying to poison Bernard, with the help of her lover and the family's housekeeper Travis (Rob Riggle). She starts to suck on Travis's toes, when the doorbell rings repeatedly. It's Harry and Lloyd. They inform the Pinchelows of their situation. They get an idea of how dumb the two are when Bernard lets Harry call Penny's phone, only for Lloyd to answer and think he's talking to his dead dad. This leads Bernard to realize Penny left the package, which he tells Adele is worth billions. She hatches a plan to let Harry and Lloyd deliver the package to Penny in El Paso, with Travis accompanying them.
Travis hits the road with the guys, being forced to listen to their idiocy and being subjected to a prank where Harry and Lloyd fart in the backseat and close the window to leave Travis with the stink.
The guys stop at a gas station. There, Lloyd has a fantasy about himself with Penny, where he takes her to prom from Harry's trailer where he lives with Mama June and a young boy. Ninjas attack at the prom and kill Harry, forcing Lloyd to take revenge. He kills them in graphic ways, like ripping a ninja's nuts off with a whip. He then pictures himself and Penny about to make love, though he snaps out of it. Travis then comes out of the convenience store to make a truce with the guys and play a game called "Funnel Nuts". He tells the guys to stick funnels in their pants and try to get a peanut in there. He then pours slushies down their pants.
The guys get back at Travis in his motel room by setting off a dangerous amount of fireworks, which burn Travis badly and make him jump in the pool. Travis calls Adele and begs her to let him kill them. She agrees as long as he makes it look like Harry and Lloyd never met them.
The three hit the road again, with Travis taking out his gun to kill the guys. He sets off a firecracker in the car that deafens Harry and Lloyd briefly. They stop the Hearse in the middle of the road. Travis seizes the opportunity to shoot them, only to not realize that he is sitting on train tracks, just as a freight train plows into him and the Hearse, which Harry and Lloyd don't hear or see. They assume that Travis took off without them.
The guys stumble upon a nursing home to get a hearing aid for Harry by pretending to be the grandson of an old woman. They go into her room. She tricks Lloyd into putting his hand up her vagina to find diamonds. She hands them the hearing aids because he earned them. Looking for a vehicle, they stumble upon their old Mutts Cutts van. They take it for a ride, only for it to break on the road. They steal a Zamboni.
Adele hears of Travis's death from his twin brother Captain Lippencott. The man is a former special ops guy with the skills and know-how on killing. He appears behind Adele in camouflage and agrees to kill Harry and Lloyd.
The guys make it to El Paso for the KEN Convention. Lloyd finds a nerd that knows Penny and gives him a phone for her to call him on. Without a ticket, they try and force themselves in dressed as scholars in graduate caps and robes. This fails. One scientist comes around to hear that Penny is there with her father. He mistakes Harry for Bernard and invites him and Lloyd to join them for a seminar. They interrupt a man's presentation on dark matter by making armpit farting noises, leading the man (who also thinks Harry is Bernard) to admit his information is lacking, and he runs off crying.
Harry and Lloyd then get into an argument when Harry realizes that Lloyd wants to get with Penny. Harry says that, as her dad, he thinks she can do better. This hurts Lloyd's feelings and he leaves. Harry is then invited to judge a young inventors' competition.
While Harry judges the event, by mocking the students' inventions or grossing them out (one invention that shows into Harry's mind reveals a gross memory where he puts peanut butter on his balls to let a dog lick him there), Lloyd gets a call from Penny. They arrange a meeting at a fountain after he tells her that he's there with her dad. They go to a restaurant where Lloyd gives Penny the letter from Fraida. Penny reads it out loud and Lloyd hears that she was conceived at a spot where Lloyd took many women to have sex with. This leads him to think that HE is actually Penny's father. He then realizes that now Harry can't get a kidney.
Adele arrives at the convention and exposes Harry as a fraud when she tells the heads of the convention that he is not her husband. Fraida also arrives and sees Penny, and neither of them can get in without a ticket or credentials. Penny is sad since she can't meet her real dad. Fraida pulls the fire alarm and everybody exits. Harry runs into Fraida and Penny, only for the moment to be ruined by Lippencott pulling a gun. They run into the bathroom where he and Adele follow. The villains find Harry, Fraida, and Penny and aim their guns at them. Lloyd then bursts in and tells Harry that he is not Penny's dad, while holding a box that contains Lloyd's kidney. He crossed the border into Mexico and got surgery to give up his kidney for his best friend. Fraida also mentions that Lloyd isn't Penny's dad either. Then three cops bust in with a healthy-looking Bernard, who knew that Adele was conspiring against him. The package he gave Penny were just cupcakes for one of the convention heads. Adele then turns her gun on Penny, but Lloyd jumps in front of the bullet. Adele and Lippencott are arrested.
Harry is rushed to the hospital, where he reveals that he was pranking Lloyd on the kidney thing. Both Lloyd and Penny think it's awesome, even though Lloyd did get his kidney removed, only for him to be carrying a porkchop. The doctors wheel Harry in to be treated for his wound.
Outside, Penny meets the Stainers, who are her grandparents, and therefore, her father was Pee Stain. Harry and Lloyd are then told by Fraida that neither of them had sex with her. They also happen to not know how sex works, thinking they got Fraida pregnant by touching her breasts or "French-tickling" her.
Harry and Lloyd are later walking together, with Harry saying he knew Lloyd was faking his mental illness months ago, and then planned to get him back. They then lament that they once again never got the girl, until they spot two gorgeous women walking in their direction. They decide not to waste this opportunity, and they end up shoving both women into a bush as a joke. They run off and high-five each other.
After the credits, Harry and Lloyd are riding in the Zamboni, complaining that they got the wrong milkshakes (when in fact, they are drinking each others' milkshakes). They toss them backwards for the shakes to hit the truck of their old nemesis Sea Bass. He follows the two idiots as a text comes up for "Dumb and Dumber For", coming in the summer of 2034.