The film starts with a vengeful Prince Charming (Rupert Everett), who now performs inside a stage in a bar, vowing that he'll become King of Far, Far Away.

Meanwhile King Harold (John Cleese) is dying and his ogre son-in-law Shrek (Mike Myers) and daughter Princess Fiona (Cameron Diaz) are next in line to be King and Queen of Far Far Away. Shrek insists that an ogre as king is a bad idea and that there has to be someone else for the job. Before dying, Harold tells Shrek that there is another heir: his nephew, Arthur Pendragon (Justin Timberlake). Shrek, Donkey(Eddie Murphy) and Puss in Boots (Antonio Banderas) set out to retrieve Arthur. As they're sailing away, Fiona announces to Shrek that she is pregnant. Shrek says that he is going to like it until he begins thinking of what being a father would bring to him.