The third Wallace and Gromit short film from director Nick Park and Aardman Animations, featuring Wallace's dream woman, her evil dog, a surprisingly smart sheep (who would later star in the Shaun the Sheep series), and of course Wallace and Gromit. Peter Sallis does the voice of Wallace, and Anne Reid that of Wendolene.
The film opens with Gromit knitting in bed and hearing a truck full of sheep passing outside, down West Wallaby Street, and the smallest of the sheep escapes and wanders into the home of inventor Wallace and his loyal, sensible dog Gromit. Wallace and Gromit, however, do not find out about this immediately when they wake up, as they are too busy trying to make breakfast with some inventions that are not functioning as desired. They do notice that various things in their house have been nibbled on.
Perhaps because of the money woes mentioned in the previous film, The Wrong Trousers, Wallace and Gromit have started a window-washing company. Their first morning call is from the local wool shop, which seems to have a lot of wool in stock even though the newspaper headlines trumpet that there is a shortage because sheep are being stolen. Wallace, however, is more interested in getting to know the shop owner, Wendolene Ramsbottom, leaving Gromit to do the actual washing and avoid Wendolene's creepy dog Preston. Preston actually takes the opportunity to sneak into Wallace and Gromit's home while they are away.
Returning home, Wallace and Gromit finally discover the pest who's been taking a bite out of everything within reach in the house, whether or not it would normally be considered food. As the sheep is covered in spilled kitchen items when he is found, Wallace takes him down to the basement workshop and puts him into a new contraption he's invented, the Knit-O-Matic. The intent is just to wash him off, but the machine gets out of hand and shears him and knits a small sweater/jumper out of the wool. Wallace promptly puts the sweater back onto the shivering sheep and declares, "We'll call him Shaun, eh?." (The similarity in pronunciation of that name to "shorn" would only work in certain non-R-pronouncing accents, such as Wallace's.) Preston, hidden in the workshop, sees the whole thing and emerges after the others have gone upstairs to steal the plans for the Knit-O-Matic.
The next day, Shaun accompanies Wallace and Gromit to the town square to clean the giant clock. Wallace takes the chance to pop into Wendolene's shop, and Shaun wanders through a gate next door. A suspicious Gromit follows the sound of baa-ing and sticks his head through a hole in the wall above the shop, allowing Preston to photograph him with his head stuck through a portrait of a man standing with a butcher knife next to a conveniently placed Shaun. So Gromit goes into the building to see what that was all about and finds a can labeled "Preston's Dog Food" and a window that looks onto a truck outside. Gromit goes to look inside the truck and lets loose a flock of sheep who flood through the wool shop (sweeping Wallace off his feet) -- but at the back of the truck sits a leashed-down Shaun. Gromit goes to free him, but Preston, in the driver's seat, closes the back before Gromit can follow the sheep, and drives away with Gromit.
The next view is Wallace reading the newspaper (with the entire flock munching on the contents of his sitting room) -- and its headline says "Killer Dog Gromit Arrested"! The doorbell rings and it's Wendolene, delivering the cryptic command to stay away from her and her shop, and adding that she is sorry about Gromit.
The progress of Gromit's trial is shown through several days of newspaper headlines (and the sheep even start reading them over Wallace's shoulders). After he's convicted, we see him in a prison cell, reading "Crime and Punishment" by Fido Dogstoyevsky, and being delivered a dish of food through a slot in the door -- followed, unexpectedly, by a box containing a puzzle. Despite the depressing subject matter (a flock of sheep), Gromit is bored enough to put together the puzzle and finds that it contains a message to be ready at 8:00 p.m. on Friday, which naturally is almost the exact time Gromit sees the message. The face appearing at the cell window is that of Shaun, who along with Wallace and the rest of the sheep are there to break Gromit out.
Discussing their options for the future in a field while the sheep graze, Wallace and Gromit happen to be near enough to hear when a truck drives up and Wendolyn and Preston emerge. Wendolyn protests that she no longer wants to be part of the sheep rustling -- "It wasn't so bad when it was just the wool, but this is EVIL!" As Preston locks her in the back of the truck with the recaptured sheep, she protests that "Daddy didn't create you for this!" and finally "You're not going to turn me into dogmeat!"
Wallace and Gromit pursue the truck in the motorcycle and sidecar they were using to carry their window-washing equipment, and then are pursued when Preston sees them. Who's leading the highly-visual chase goes back and forth and ends up in Preston's workshop by the wool shop, where Preston has not only duplicated the Knit-O-Matic but built a machine to process dog food. Gromit and Shaun manage to push Preston into the Knit-O-Matic, which reveals that under a soft skin, Preston is a robot. Shaun then saves the day by keeping the other characters from being swept into the "Mutton-O-Matic" by jamming Preston into the mincing mechanism, which makes the machine grind to a halt.
In the last scene, Wendolene is "walking" Preston (he is on wheels) and thanking Wallace for rebuilding him as his original good, protective self. Wallace invites her in to share his beloved cheese, but she says that cheese brings her out in a rash and bids him goodbye. Wallace is aghast that such a wonderful woman could possibly not share his favorite food, but cheers up when he realizes that it means more for him and Gromit.