On the bank of a tranquil river, Alice (who Sora and the others are hanging out with) grows bored listening to her older sister read aloud from a history book about William I of England. Alice's sister scolds her, gently but firmly, for her lack of attention. At that moment, Alice dreams of living in a world of nonsense ("A World of My Own", as she explains and sings to her little kitten Dinah). Just then, They see a White Rabbit wearing a waistcoat and carrying a large pocket watch. She, Dinah, Sora and the others follow him into a rabbit hole, where Alice and the others suddenly falls down into a deep well, leaving Dinah behind.
At the bottom, They follow the Rabbit into a large chamber-like hall, but he escapes through a tiny door. The Doorknob suggests Alice and the others drink from a bottle marked "Drink me." The contents shrink them to a tiny fraction of their original size. The door is locked, and the key appears on the table, which they can not reach. The Doorknob directs them to a cookie marked "Eat me." The cookie makes them grow so large that Alice's head hits the ceiling. She begins to cry; her massive tears flood the room. The Doorknob points out that the "Drink me" bottle still has some fluid left inside, so they finishes the last drop. They becomes so small that they dropped inside the bottle. Both she, Sora, the others, and the bottle drift through the doorknob's keyhole mouth and out to a sea made from Alice's tears.
Alice and the others chases after the Rabbit again, and she finds Themselves in a garden of talking flowers and strange insects. The flowers at first befriend Alice and Sora and the others, but then mistake them for weeds and angrily drive them out of the flowerbed before they can "take root." They engages a hookah-smoking caterpillar who turns into a butterfly, though not before giving them cryptic advice about the mushroom they are sitting on. Alice breaks off two pieces and nibbles them alternately (first growing very large and unintentionally aggravating a Nesting Mother Bird, who accuses Alice of being a "serpent", then shrinking very small). Finally Alice manages to restore herself to her normal size and stores the pieces in her apron pockets.
Alice and the others receives mysterious directions from the Cheshire Cat, an eerily grinning feline that can disappear and reappear at will, which lead them to the garden of the March Hare, who is celebrating his "unbirthday" with the Mad Hatter and the Dormouse. Alice, growing tired of their rudeness and wackiness, decides and she and others go home, abandoning their pursuit of the White Rabbit. They are lost and despondent among the strange creatures of the Tulgey Wood, until the Cheshire Cat reappears and shows them a short-cut out of the forest and into the garden of the Queen (and King) of Hearts. In the hedge maze garden, Alice and the others meet some playing cards painting white roses red. The White Rabbit heralds the arrival of the bellicose Queen of Hearts, the diminutive King, and a card army. She invites Alice and the others to a strange game of croquet using Flamingos as mallets, hedgehogs as balls, and card soldiers as wickets. The Cheshire Cats plays a prank on the Queen, who blames Alice and the others and orders their execution. The King suggests that Alice and Sora and others are to be put on trial instead. At the trial, Alice and our heroes' nonsensical acquaintances (the Mad Hatter, the March Hare, and the Dormouse) are of no help to them. The Cheshire Cat appears and causes enough distraction to allow Alice to eat the remaining portions of mushroom, causing her to grow to gigantic proportions. At this size, Alice scolds the terrified Queen for her rash behavior, but then starts shrinking back to her normal size all too soon. At the Queen's command of "Off with their heads!" all the crazy inhabitants of Wonderland give chase. Coming back to the Doorknob, Alice and Sora and the others are told by him that he is still locked, but that they are already on the other side. Looking through the keyhole, Alice sees herself and the others asleep in the park. As the mob draws nearer, she calls, "Everyone, wake up!" to their sleeping selves until they gradually awaken from the dream to the sound of her sister's voice. The two of them return home for teatime; while Alice muses on their adventures in Wonderland and realizes that perhaps logic and reason exist for a purpose, her sister realizes affectionately that Alice is still young, but will grow-up in time. Sora, Donald, Goofy, Ratchet, Clank, Qwark, Sly, Benley, Murray, Dimitri, Pecker, Jak and Daxter say "Good-Bye" to Alice, and they will see her again, someday.
Meanwhile: Cronk and Zephyr's spirits were shown to have crossed over into the afterlife; their consciousness fueled with youthful exuberance as they banter in Wonderland. After this they head to The Castle to scare The Queen of Hearts.