Plot
Dougal, a well-meaning, yet greedy Skye Terrier, places a nail in the road to spike a sweets cart's tyre, intending to enjoy the sweets himself. When the driver leaves to seek help, Dougal inadvertently crashes the cart into the roof of the village's Magic Roundabout. The resulting explosion damages the structure, causing it spin uncontrollably until an ice wizard flies out and freezes it solid, trapping repairman Mr Rusty, Dougal's young owner Florence, and two other children, Coral and Basil inside an icy prison. Alarmed, Dougal joins his friends - Brian the cynical snail, Ermintrude the opera-singing cow and Dylan the hippie rabbit- in summoning Zebedee, a jack-in-the-box-like wizard, for help.
Zebedee explains that the roundabout served as a barrier to keep his evil counterpart, Zeebad, imprisoned and to prevent him from freezing the world as he once did before. Now that Zeebad is free, he can work his icy magic again. To stop him, three enchanted diamonds must be slotted into the roundabout to re-imprison Zeebad and reverse his magic. If Zeebad claims them first however, he will use them to freeze the sun. One diamond is said to be hidden on the roundabout while the other two are located far beyond the village. Zebedee sends Dougal and his friends aboard Train, a magical locomotive, to find them. After escaping, Zeebad comes across a Foot Guard animatronic named Soldier Sam, catapulted from the roundabout when it froze, and brings him to life to help him search for the diamonds. That night, while the gang camps in the mountains, Dougal wanders off and is suddenly abducted by Zeebad. Guided by a European moose, the gang finds Zeebad's lair, where Ermintrude frees Dougal from captivity. Zeebad gives chase, but Zebedee arrives to face him in a duel. In the end, Zeebad defeats him, freezing Zebedee on a cliff and causing it to collapse, sending him plunging into the abyss.
Though saddened, Dougal and his friends press on to retrieve the diamonds from a volcano edged with lava and an ancient temple guarded by evil skeletons. But Zeebad seizes them, leaving the gang's only hope of stopping Zeebad by reaching the roundabout first. Aboard Train, they are pursued by Zeebad in a drill-like locomotive and overhears their plan. Crashing into a buffer stop, they are launched into the snow, injuring Train, and forcing them to leave him behind as they trek back to the village through the freezing wasteland. Zeebad, after abandoning an injured Sam in the snow, arrives at the now-frozen village ahead of them, but unable to find the third diamond. Realising his true duty is to guard the roundabout, Sam rides in on the moose to face Zeebad, but is overpowered and fatally wounded. Discovering that Sam was part of the roundabout, Zeebad learns that the diamond is hidden within him, and removes it, ending Sam's life.
As Zeebad begins to freeze the sun with the three diamonds, the gang rushes back to the village, reclaiming the diamonds and placing them on the roundabout until only the third diamond remains. Zeebad snatches it back, seemingly reclaiming his victory, but a healed Train arrives just in time to knock it free, giving Dougal the chance to redeem himself by slotting it on the roundabout. The diamonds' power re-imprisons Zeebad, thaws the world and the sun, and restores the Magic Roundabout. Zebedee, having survived the fall, reunites with his friends. Those trapped on the roundabout are freed, and Dougal revives a comatose Florence. When they try to ride again on the roundabout, they find that it is non-functional due to Sam being deceased. Zebedee restores Sam to his inanimate form, returns him on the roundabout which now functions again. Dougal comes to understand the true value of friendship, along with selflessness, courage, and humility.