Sherman Klump has created a new youth formula which enables those who take it to de-age. He has also fallen in love with a colleague, Denise Gaines, who has developed a method to isolate genetic material. Despite his good fortune, Sherman has a major problem: the personality of his alter ego Buddy Love is still ingrained inside him and has begun to periodically take control of his body. Sherman tries proposing to Denise, but Buddy takes over and humiliates him, mortifying Denise.
Determined to be rid of Buddy permanently, and despite his assistant Jason warning him of potentially consequences for his health, Sherman uses Denise’s methodology to isolate and remove a gene in his DNA where Buddy has manifested. However, the genetic material containing Buddy grows into a sentient being when a hair from a Basset Hound accidentally lands in it. Sherman apologizes to Denise and the two become engaged. Later, Dean Richmond informs the two that a pharmaceutical firm has offered Wellman College $150 million for the youth formula.
Sherman and Denise then encounter the newly reformed Buddy at a movie theater. Buddy pickpockets Sherman and learns of the $150 million offer. He subsequently visits the pharmaceutical company and makes a rival bid for the youth formula. Sherman learns that due to the extraction, his body chemistry has been altered and that he is losing his intelligence. Realizing he needs to keep the youth formula out of Buddy’s hands, Sherman stashes it at his parents’ house.
Sherman’s father Cletus, who is sexually frustrated due to his age and impotence, drinks some of the youth formula. He goes out for a night on the town and attempts to seduce his wife, but she is horrified. Buddy love witnesses Cletus changing and realizes that the youth formula is being stored in the Klump household. Meanwhile, Sherman’s condition causes him to act like a fool in front of Denise’s parents, concerning her.
Buddy steals some of the youth formula from the Klump household, and fills the vial the rest of the way with fertilizer. This sabotage causes chaos at a demonstration the next day, as a hamster Sherman uses to demonstrate the formula instead mutates into a giant monster who violates Dean Richmond. The humiliated and enraged Dean fires Sherman. Sherman learns that his brain’s deterioration has worsened from Jason, and he decides to break up with Denise. Cletus reconciles with his wife and consoles a depressed Sherman.
Sherman quickly works on a newer, much more potent formula while his mental faculties allow him to. Richmond confronts him about Buddy’s actions, believing the two are working together. Sherman leaves with Richmond and a tennis ball covered in the youth formula and head to a presentation Buddy is giving about the youth formula. Meanwhile, a worried Denise discovers what has happened and that Sherman’s brain damage is still progressing. Enlisting the help of Cletus, Denise goes after him. Sherman takes advantage of the canine DNA that crossed with Buddy’s, and uses the tennis ball to distract him. Buddy catches the ball in his mouth, and the youth formula transforms Buddy back into a glowing mass of sentient genetic material.
Sherman chases the genetic material, intent on drinking it to correct his condition. However, the material evaporates on the edge of a fountain before he can consume it. Denise and Cletus arrive too late to save him, and Denise breaks into tears, which hit the genetic material and fall into the fountain. As they go to leave, Sherman takes a look at a fountain and remarks that it is “pretty”. Seeing that the water is glowing, Denise realizes that the genetic material has reconstituted thanks to her tears and has fallen into the fountain, and that if Sherman drinks the fountain water before it dissipates, he will be restored to normal. Sherman drinks the water, and is able to get his genetic makeup back in proper order, restoring his intelligence.
Denise and Sherman’s later get married, while Richmond entertains the idea of loving the hamster, who has returned to normal.