When John was a friendless little boy he made a wish for his soft-toy teddy bear (Ted) to come to life and be his companion. His wish was granted, but 30 years later their close friendship is having a negative effect on John's relationship with his long-term girlfriend, Lori. When John ditches Lori's work party to meet up with Ted and Flash Gordon star Sam J.Jones it is the last straw for Lori, who tearfully dumps him.
A couple of weeks later, Lori agrees to go on a date with her sleazy boss Rex, but John and Ted gatecrash their date and John wins her back with a badly-sung, but heartfelt, rendition of All Time High by Rita Coolidge.
Just as things look like they are going to work out okay, Ted is kidnapped by a strange man named Donny, who has been obsessed with Ted since seeing him on television as a child. He and his overweight son keep Ted hostage, but Ted manages to get word to John, who, with Lori at his side, embarks on a mission to save his long-time friend.