Cassie brings her pet caterpoozle, Poosie, along to hop on some mushrooms with her friends. However, she discovers that Poosie has gone missing, but later learns that she is changing into a butterfairy.
Ord, Zak, and Wheezie are hopping on some giant, rainbow-colored mushrooms when Max and Emmy arrive in Dragonland. When the children ask where they came from, Zak tells them that the mushrooms "popped up overnight". As they bounce around them all, Cassie arrives and greets her friends, noticeably holding something. Max and Emmy invite her to bounce on the mushrooms with them, but Cassie politely declines, wanting to play with Poozy.
When questioned by Max what a Poozy is, Cassie introduces her caterpoozle to her friends. Poozy is a pale green creature slightly resembling a caterpillar, and Cassie happily shows off the tricks that Poozy can do to her friends. Cassie then produces a small cage that serves as Poozy's home, and sets her inside to eat her lunch, a fresh leaf. After making sure that Poozy is eating, Cassie is persuaded by Emmy to join them in mushroom hopping.
After bouncing for a couple of minutes, Cassie leaves her friends to go and check on Poozy. While Cassie was bouncing with her friends, Poozy had knitted herself a cocoon after becoming cold during her lunch. Cassie, panicked at not seeing Poozy immediately, says she doesn't know where Poozy is. Zak suggests that they search for her, and all the dragons and Max and Emmy do just that.
While searching, Max believes that he felt Poozy, but it turns out just to be another Dragonland creature. Looking back in the cage, Cassie sees Poozy lying peacefully in the cocoon and believes that her pet has died, and breaks down into sobs at this fact. At that moment, Quetzal comes walking through the woods and sees a distraught Cassie, who has wrapped up Poozy, still in her cocoon, in an oak leaf. Cassie, hugging Quetzal, laments that she was unable to say goodbye to her pet. Quetzal arranges a small funeral for Poozy, setting her body in the oak leaf in a hollow of a tree. Emmy, Max, and all the dragons circle the tree and say something nice to Poozy before Quetzal, after Ord's question upon whether or not he would say something, Quetzal tells Poozy that she was very lucky to have so many kind friends. After giving Cassie another hug, Max is spooked by the growly noise from Ord's hungry tummy, and Quetzal suggests that he make some cookies and milk to help them all feel better. After everyone agrees, even Cassie, Quetzal goes off to bake some.
Cassie's friends suggest that they find Cassie another pet and Cassie, although reluctant to do so, is persuaded when Max exclaims that they should go "pet hunting". Max comes across a Stinky-Dink, which sprays him with a foul-smelling smoke-like substance. Wheezie finds a flying horse-like creature, while Zak finds a fruit fly. Cassie says that all of the animals her friends have found are nice, but apologizes to them all and says that none of them will be as perfect as Poozy, when, suddenly, she feels a familiar set of legs crawling across her foot. Looking down, Cassie sees a second caterpoozle, who is purple, and is just as friendly as Poozy was. Cassie exclaims that this new caterpoozle snuggles just like Poozy did, and Emmy comments that this new caterpoozle is cute.
Quetzal returns with the cookies and milk, and all the dragons and Max and Emmy sit down to enjoy them. Cassie shows off her new caterpoozle to Quetzal, who exclaims, "Magnifico!" and asks about her name. Emmy tells Quetzal that Cassie hasn't decided on a name yet, but Cassie replies, "Yes, I have! I'm going to call her Poozy Two!" Everyone says that Poozy Two is a wonderful name, and Quetzal asks if Poozy One was a caterpoozle as well. When he discovers that she was, he returns to the hollow of the tree and unwraps the cocoon from the leaf, just as it begins to move in his hands. Quetzal says, "I thought so" when suddenly it breaks apart like glass and, there in his hands, a creature Quetzal tells them is a "Butterfairy" stands proudly. Max, confused, says that he thought Poozy was a "catterpuzzle" and Quetzal, after correcting him, says that she was, but now she has turned into something else, just as Max will one day, into a man.
Cassie says goodbye to the Butterfairy before Quetzal tells her that she has a new caterpoozle and new Butterfairy friend. Poozy Two looks up lovingly at Cassie, and they snuggle for a moment while all of her friends look on. Emmy then suggests that they take Poozy Two for a hop around the mushrooms, which they all do. Max and Emmy then return home.
Max: "I thought Poozy was a caterpuzzle."
Quetzal: "Caterpoozle, Max. And she was, but caterpoozles, like many other creatures, change as they grow up, just like you'll change, Maxito."
Max: "Into a bug?!"
Quetzal: "No! Into a man."
Wheezie (finds a Horse Fly): Cassie will love this one.
Wheezie: What do you think Cassie? It's a Horse Fly.
(Horse Fly neighs)
Cassie: Uh, no thanks Wheezie.
Zak (finds a Furit Fly): Uh, how about this one Cassie? Neat Fruit Fly, huh?
Fruit Fly: Fruity tutie rootie.
Cassie: It's cute, Zak.
Max: I found one. I found one.
Ord: D-d-don't get to close, Max.
Max: Why not?
Ord: Cause it's a Stinky-Dink.
(Stinky-Dink sprays Max with a foul-smelling smoke-like substance)