Woody, Buzz and the whole gang are back. Andy is heading off to college and Woody and Buzz are worried about their future. Andy plans to put the toys in the attic, but his mom accidentally throws them away. They end up being donated to Sunnyside Daycare where they meet new faces such as Lotso, a pink-strawberry scented teddy bear and a smooth-talking doll named Ken who falls in love with Barbie.

The toys are making new friends in the daycare, except for Woody, who tries to return to Andy. He is accidentally taken by a girl named Bonnie, who introduces him to her toys such as Mr. Pricklepants, Trixie, Peas-In-A-Pod, Dolly, Buttercup, and Chuckles. When Chuckles tells Woody of the perils of Sunnyside, this makes Woody want to return back to his friends.

Chuckles says that he, Lotso and Big Baby were owned by a girl named Daisy. When Lotso finds out that Daisy has bought a new Lotso, he is confused and feels betrayed as Chuckles is taken by Bonnie. Lotso and Big Baby get revenge and turn the daycare into a toy prison. After, the kids in the daycare are seen torturing the toys.

Woody returns to Sunnyside and says he's sorry that he left them. Buzz sneaks into the meeting of the Sunnyside toys where Lotso convinces Buzz to be one of their henchmen by being reset to his old delusions of being a real space ranger from the first film. Lotso then starts to stop them to leave Sunnyside. As Mrs. Potato Head's missing eye was in Andy's room, she sees that Andy is looking for them. Soon they capture Buzz and attempt to return him to normal but end up turning him to Spanish mode much to the toys discomfort and Jessie's amazement. Now together the toys must get back to Andy's house before he leaves for college.