There is a square of a fairy-tale town. Standing in the square are what seem to be baskets of vegetables and boxes of fruit. But appearances can be deceptive, and, in fact, these are big and small houses which are lived in by vegetables and fruit who are extraordinarily reminiscent of real people.
The Radish and Onion families meet in the square. Mother Cipolla and Father Cipollone are ticking off their irrepressible son, Cipollino, who is fed up with having to look after his sister, Cipolette. Nearby cobbler Grape is mending shoes. Grandfather Pumpkin is searching for bricks so he can build himself a house. Professor Pear is playing the violin, and all the inhabitants of this fairy-tale town are dancing. Suddenly, Signor Tomato rushes into the square and announces that very soon Prince Lemon himself, who wishes to address his people, is due to arrive in the square. The Prince has issued a new law; everyone must now pay for their share of the sunshine, the rain, and the wind.
The Prince`s subjects are indignant. In the general crush, Cipollino accidentally steps on Prince Lemon`s foot. The Prince`s bodyguards take umbrage. His Royal Highness has been insulted! The ‘rebel` must be punished. But he has disappeared, so the police arrest old Cipollone.
It is not only the Onion family who is grieving. Grandfather Pumpkin is having a tough time because he will never succeed in building himself a house on his own. So the inhabitants of the town, led by Cipollino, give him a helping hand. No sooner is the building work completed, than Signor Tomato appears once again. He almost bursts with anger when he sees the house. It has been built on the land belonging to the Countesses Cherry. Only the Countesses Cherry may make use of this land.
Prince Lemon`s bodyguard pull down Grandfather Pumpkin`s house. The poor old man is in despair. Cipollino decides to take revenge on his enemies.
Cipollino, together with his friend, Little Radish, go to the palace in order to look for the dungeon in which old Cipollone has been incarcerated by Prince Lemon. On the way they meet Count Cherry who finds life in the palace very dismal and lonely, and they become friends. During their search for Cipollone, the friends fall into the hands of Signor Tomato, but they manage to escape his clutches and, during a ball given by the Countesses Cherry in honor of Prince Lemon, set free old Chipollone.
Prince Lemon`s bodyguards and the police are searching everywhere for the runaways. Cipollino manages to hide his father, and then Little Radish, but he himself is taken prisoner by the guards and thrown into the dungeon.
All is quiet in the palace. Count Cherry and the beautiful Magnolia are seeking for Cipollino. Magnolia sends the guards to sleep with her heady perfume, meanwhile. Count Cherry ties them up and sets Cipollino free.
Prince Lemon descends to the dungeon in order to punish the good-for-nothing rebel but he finds that his guards have been tied up and that the dungeon is empty. The Prince is furious and orders that the town be bombarded with cannon fire. But Cipollino and his friends stuff Prince Lemon himself into the cannon.
Once the smoke from the shot has evaporated, neither Prince Lemon nor the cannon, nor the bodyguards are anywhere to be seen.
From now on, for ever and ever, everyone in the fairy-tale town will live together peacefully. And under the blue sky and bathed in sunshine, a new town will grow up. A town of friends!