An ink-filled balloon puts Alice in the corner of the classroom with a dunce cap on her head. When she can't stay awake, she finds herself in Cartoonland again, but her teacher tries to bring her back with the aid of books representing the three R's.
A mother and daughter are in a fix because their mortgage payment is due and they can't make it--and the heartless landlord is about to foreclose on their house and throw them in the street. Their son Jack, who is in jail, finds out about their plight and breaks out in order to enter his horse in the steeplechase race to win enough money to pay the mortgage.
When a ball is accidentally knocked through the window of a neighborhood haunted house, Alice is the only one brave enough to go inside to retrieve it. While she is in there she falls and bumps her head, sending her to a cartoon dreamworld in which she rescues a cat and battles some spirits in a ghost town. When she awakens, she retrieves the ball, only to find out that police ...