While getting the Dragon Temple ready for Halloween, Spyro and Kairi stumble across a book containing 5 stories of the disney classics: Peter Pan, Snow White and the Seven Dwarfes, Cinderella, Pinocchio and Alice in Wonderland in the Temple basement. While showing the book to the other lougers, Jiminy Cricket appears and suggests he should read one of the stories while they wait for the party to begin. However the book's happy ending pages are ripped out by a very bored Jiminy, who has read them so often that they put him to sleep. As a game, he asks the louge to put them back where they belong, then suddenly they discover that the book is enchanted and the five disney villains (Captain Hook, The Evil Queen, The Queen of Hearts, Lady Tremaine and The Coachman) have alter the stories to their advantage, without the presence of happy endings. The Blue Fairy appears and explains that because stories live on in the hearts of readers, and when Jiminy removed the happy endings, he left the stories at their climax, with the heroes in peril and the villains put in control. So Spyro, Kairi, Twilight and the others (Minus Fluttershy do to her wanting a not-so-scary adventure and being a scared filly on Nightmare Night) begin an adventure in the worlds of the stories to correct the happy endings and save the stoybook heroes in a race against time.
In the Alternate Stories, The Coachman has managed to lure Pinocchio back to Pleasure Island, and lets him make a complete "Jackass" of himself transforming him into a full donkey much to Jiminy's complete horror, but thankfully can still talk while he plans to slaughter him and the donkeys that can still speak like Alexander, turning them into dog food after he sells the fully transformed donkeys like Lampwick into slavery in salt mines, circuses and zoos. The Louge help Pinnochio escape from both Pleasure Island and the Coachman's clutches again while Twilight tries to change Pinnochio back into a puppet. Lady Tremaine once again has Cinderella locked in her room after discovering she has attended the ball and danced with the Prince. But this time she has Cinderella's foot shackled in her room, has stolen and shattered her Glass Slipper and plans to do the same with the other slipper the Grand Duke has which will turn Cinderella's dreams into nightmares and change her story forever while she has Cinderella's Fairy Godmother, Jaq, Gus and all of her other animal friends trapped in cages while being guarded by both Anastasia and Drizella (Lucifer will not be in this due to Scroop being a cat person and dosent like the ideal of evilizing felines) to prevent them from helping Cinderella again, which results in Kairi stalling the Duke by trying on the slipper herself while the others help Cinderella and all of her friends get free from captivity. The Evil Queen disgused as the Witch has built a giant house resembling her infamous poisoned apple and has put Snow White into eternal sleep and intends to do the same to the seven dwarves. The Prince is also trapped by magic that only Twilight and her expert knowledge on magic can undo. Captain Hook has aged Peter Pan into an old man, making it hard for the boy to fight, and Spyro fights Hook instead while the louge fight the pirates. And finally, The Queen of Hearts has violently decapitated Alice, although the girl is still alive despite the separation of her body and head which forces the louge to find and unite them in a find a needle in a haystack search in the Queen's hedge maze.
Can Spyro and his team of misfit friends fix Jiminy's mistake and defeat the 5 villains in time before the Louge's Halloween Party begins on schedule while Fluttershy remain as the big filly that she is?