In London in June 1897, a young mouse named Olivia Flaversham is celebrating her birthday with her toymaker father, Hiram. Suddenly, a bat with a crippled wing and a peg leg bursts into the Flaversham's workshop, kidnapping Hiram. Olivia searches to find the famed Great Mouse Detective named Basil of Baker Street, but gets lost. Skunk and freinds arrive in London where they meet a surgeon named Dr. David Q. Dawson, who has just returned from a lengthy service of the Mouse Queen's 66th Regiment in Afghanistan, theny then meet Olivia, and escorts her to Basil's house. Upon their arrival at his residence, the animals see they are too big to fit inside mousehole so Dawson gives them a special potion that shrinks them, aside from Ox & Bird who remain normal size. Once inside Basil is initially indifferent, but when Olivia mentions the peg-legged bat that kidnapped her father, Basil realizes that Olivia saw Fidget, a henchman of Professor Ratigan, a villain Basil has attempted to arrest for years. It is then revealed that Baboon is working for Ratigan, who has kidnapped Hiram to create a clockwork Robot, which mimics the Queen of the Mice so Ratigan can rule England. Hiram initially refuses to participate in the scheme, but gives in when Ratigan threatens to harm Olivia. Ratigan then announces his plans to kill the Queen and become "supreme ruler of all mousedom" to his henchmen.
Meanwhile, as Basil is deducing the case, Fidget appears through the window, scaring Olivia. They give chase as Basil finds Fidget's footprints, declaring that they purse him in order to find Hiram. Basil, along with Dawson Olivia and the valley animals, takes Toby, Sherlock Holmes's pet Basset Hound, to track down Fidget's scent, where they locate him in a toyshop stealing clockwork mechanisms and toy soldiers' uniforms. Fidget ambushes Olivia from inside a toy cradle and kidnaps her. Basil and Dawson pursue Fidget, but become entangled and fall behind. While searching the shop, Dawson discovers Fidget's checklist, to which Basil does some chemical tests to discover the list came from a riverfront near the Thames. Basil and Dawson disguise themselves as sailors, and head to a tavern called the "Rat Trap" and follow Fidget to Ratigan's headquarters. They are caught in an ambush by Ratigan and his allies, and Ratigan has his hooligans tie them to a spring-loaded mousetrap connected with a Rube Goldberg machine laid out to kill them both, while the Ninja Monkeys have Skunk and friends locked up in a cage. Ratigan sets out for Buckingham Palace, where Fidget and Ratigan's accomplices kidnap the queen. Basil deduces the trap's weakness and escapes along with Dawson and Olivia just in time, shortly after Dawson helps Basil out of a state of self-pity into which he allowed himself, thanks to Ratigan's ambush.
At Buckingham Palace, Ratigan forces Hiram to operate the toy Queen, while the real one is taken to be fed to Felicia, Ratigan's pet cat. The toy Queen declares Ratigan the ruler of all Mousedom, and he announces his tyrannical plans for his new "subjects". After Basil, Dawson and Olivia save Hiram and the real Queen, they restrain Fidget and Ratigan's other henchmen. Basil seizes control of the mechanical queen, making it denounce Ratigan as a fraud and tyrant while breaking it into pieces. The crowd, enraged by Ratigan's treason, start climbing on him and defeating his guards. Ratigan frees himself and escapes on his dirigible with Fidget, holding Olivia hostage. Basil, Dawson, Hiram and the animals create their own craft with a matchbox, and some small helium-filled balloons, held together by the Union Jack. Ratigan tosses Fidget overboard to lighten the load, and he attempts to drive the dirigible himself. Basil jumps onto the dirigible to confront Ratigan, causing it to crash straight into the Big Ben clocktower.
Inside the clocktower, Basil manages to get Ratigan's cape stuck on some gears. He rescues Olivia and safely delivers her to Hiram. Ratigan breaks free and attacks Basil, eventually knocking him to the dirigible. When the clock strikes 10:00, the bell hits for the loudest sound and Ratigan falls to his death, taking Basil with him. However, Basil grabs the part of Ratigan's dirigible saves himself and reunites with the others. Back at Baker Street, Basil and Dawson recount their adventures, as well as the queen's gratitude for saving her life. After the Flavershams and and animals leave the house, a distraught new client arrives and solicits Basil and Dawson's help, with Basil noting that Dawson is his trusted associate, prompting Dawson to remain and assist Basil.