The film begins with a group of birds that are part of an organization called 'The Feathered Friends.' Their topic of the day: Big Bird. The organization feels that Big Bird should be placed with a family of birds, seeing as he appears to be an orphan. The organization approves for it's representative Miss Finch to help Big Bird.
Miss Finch arrives on Sesame Street, and soon convinces Big Bird that he should be with a bird family. The announcement comes as a sad goodbye to Big Bird's friends, who consider themselves his family. Soon afterwards, Big Bird arrives in Ocean View, Illinois, where he is introduced to his new family: The Do-Do's. Big Bird tries to get along with his new family, but he still feels homesick. One day, a large postcard arrives from Mr Snuffleupagus, wanting to visit. The Do-Do's laugh at the notion that Big Bird has friends that are not birds. Their words upset Big Bird, who then decides to run away back to Sesame Street.
Big Bird's friends hear of his 'flight' on TV, as well as a statement by Miss Finch who vows to find Big Bird and return him to the Do-Do's. The next day, Big Bird's friends take action, setting out by car and plane to find him.
Along the way, Big Bird soon tires of walking, and hitches a ride with a turkey farmer. After some time, Big Bird ends up on a farm, where he befriends two children. After spending the night in their barn, he helps them with their chores the next day. However, Big Bird flees when Miss Finch is seen nearby.
Eventually, Big Bird makes his way to a city called Toadstool. But Miss Finch is not too far behind, and Big Bird has to flee once again. On the outskirts of Toadstool, Big Bird meets a pair of no-goods called The Sleaze Brothers. Offering to hide Big Bird from Miss Finch, Big Bird soon realizes he is trapped when the brothers refuse to let him go.
Smelling a lucrative deal on their hands, the brothers paint Big Bird blue, and tout him as 'The Bluebird of Happiness.' However, Big Bird's stage song is one of sadness, in which he sings of being home with his friends. After the show, two children meet him backstage, where he explains for them to call Sesame Street, and tell them where he is.
The next day, Big Bird's friends sneak into the circus tent to free him. However, the Sleaze Brothers take off before they can rescue him. Gordon and Olivia give chase, and help release Big Bird, before the two Sleaze Brothers are pulled over and charged with a long string of illegal practices and felonies.
Soon afterwards, Big Bird returns to Sesame Street amid cheers from his friends, but soon grows worried when Miss Finch shows up, promising to try and place him with another 'bird family.'
Maria strongly rebuffs Miss Finch's decision, claiming that on Sesame Street, there are all kinds of people and things, and they are all happy together, even if they aren't all the same. After hearing Maria's testimony, and realizing how far his friends went to get him back, Miss Finch declares that Big Bird can stay.
Now home where he belongs, Big Bird returns to his nest, where he greets Mr. Snuffleupagus, who had been waiting for his return.