The film opens with a ship sailing into the kingdom of Dor's dock. Roscuro (a rat) (Dustin Hoffman) is aboard a ship with his human friend Pietro, sailing to the kingdom known for its soup on "Royal Soup Day". "Royal Soup Day" in this area is held in higher regard than Christmas. As they are taking in the sights, sounds, and smells of the festivities, Roscuro is mesmerized by the smell of the huge pot soup being prepared in the castle. He leaves his human companion in search of the aroma. Meanwhile, André, the royal head chef (Kevin Kline), pressured with finishing the soup minutes before its presentation, sends out his staff, and argues with a sentient anthropomorphic "Soup Genie", named Boldo, over the ingredients of the soup to be presented to the royal family. Roscuro's search for the soup's smell takes him to a chandelier directly over the royal soup bowl. Upon presentation of the soup to the queen and her subsequent first taste, Roscuro is overcome by the aroma, loses his grip, and falls into the queen's soup bowl. The queen, not realizing the rat has fallen into her soup, assumes she has eaten soup with a rat already in it, becomes horrified over the thought of eating soup with a filthy rat in it that she has a fatal heart attack. Roscuro is horrified to see what he has done and tries to apologize but is chased through the castle, during which his heart falls as he sees Pietro leaving Dor sadly on his ship. Roscuro falls down a drain to the dungeon.
Lost in his grief, he is soon comforted and taken away by an ugly rat, named Botticelli, who seems to want to be his friend. Unbeknownst to Roscuro, he instead intends to kill the gentle ways of Roscuro and destroy his fondness for light and love, and replace it with an evil soul: "A rat is still a rat. It doesn't really matter where you come from."
Following the funeral of the queen, the king in his grief orders soup to be forbidden and rats banished. The town falls into darkness and famine because of dark clouds that will not release their rain.
A few years later, after this series of events, Despereaux (Matthew Broderick), a tiny mouse with huge ears is born with his eyes open. It is eventually learned that he has no real fear. But in this mouse society, fear is taught in school as a mouse necessity, and those that cannot learn to fear are considered outcasts. Despereaux's parents attempt to teach him fear by having him explore the castles library with his older brother "showing him the ropes". But rather then being fearful he is fascinated with books, and instead of eating them, decides to read them despite his brother's orders. He develops a fascination toward fairy tales and learns from them ideas such as chivalry and courage. Despereaux is drawn towards the lonely Princess Pea (Emma Watson), who at first is afraid, but soon sees Despereaux as a gracious creature. She even expresses her desire for soup, rain, and even rats to return to the kingdom. Despereaux tells the princess a story about a happy princess but is unable to finish because he has not finished reading it yet. Before leaving he promises to finish reading the story and tell the princess how it ends. This becomes his quest.
Upon finding out that Despereaux has broken the law by speaking with a human from his father, the high council immediately decides to banish him to the dungeons. He is led to the Threadmaster, Hovis, (Christopher Lloyd), a compassionate, blind mouse tasked with sending outlaw mice to the dungeon. Despereaux, after a failed appeasing to Gregory the jailer (Robbie Coltrane), is soon discovered by Botticelli's henchmen and is sent to be eaten by a chained cat as entertainment to the rat population. Before he can be eaten, Roscuro's soft side gives way and he asks that the small mouse be given to him as his own and express the intention to eat him himself, to Botticelli's delight. However, rather than eating the Despereaux, he takes him into his home as a guest. Despereaux tells Roscuro that during his conversation with the princess she revealed to him that she wishes the sun and rain and the soup would come back and that she even misses the rats. This touches Roscuro and his guiltiness eventually provokes him to set out and apologize to the princess.
Roscuro approaches the princess and offers his apologies but despite her earlier claims, he terrifies her and the knights again chase him. He is emotionally hurt and in turn becomes bitter and decides to kidnap the princess and give her to the rats in the dungeon. He enlists the help of a hard-of-hearing servant girl, Miggery Sow (Tracey Ullman), and together they manage to bring the princess to the dungeon. But Roscuro then double crosses Mig and becomes an idol in the eyes of the rats. Meanwhile, Despereaux realizes that the princess is in danger and attempts to solicit the help of the king. But, because of his great depression, does not even notice the mouse. Despereaux then goes to the royal chef who, snapping out of his self-loathing, has decided to make a soup with his friend Boldo. Despereaux is able to win over Boldo's favor and the two of them set out to rescue the princess.
Back at the arena, Botticelli gives Roscuro a bone to ring the dinner gong with, but after looking deeply into Pea's eyes, and realizing her apologetic sincerity, the bitterness of his heart cracks away and he forgives her, refusing the duty. Furious, Botticelli rings the gong himself. But before the rats can begin devouring the princess, Despereaux arrives alone to rescue Pea and battle the rat army. During the battle Despereaux manages to free the cat and all the rats flee. But as Despereaux climbs on top of the cage, he finds Botticelli waiting for him. The evil leader contemplates whether to kill Despereaux himself, or to feed him to the cat.
But at this time, a sun-shower has finally begun outside, and all the villagers are happy. The growing light reaches a dropped locket from the princess and reflects to the center of the arena, blinding Botticelli, Roscuro, thinking fast, turns the sunlight on Botticelli's magnifying glass, onto the villain, causing him to fall. Botticelli, chased by the cat, runs from his giant predator into the cat’s cage for a fatal end. The battle finally over, Roscuro finally apologizes, only for the princess to say that there is no need to.
Mig is rescued by the jailor, who is revealed to be her father in an emotional turn of events. Roscuro is reunited with his Pietro aboard the ship that brought him. The princess and the king decide to soothe their grief of losing the queen by relying on each other for love and support. And Despereaux is reunited with his family. Despereaux and the princess remain close friends and the little mouse continues his adventures.
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