An orphaned piglet named Babe is chosen for a "guess the weight" contest booth at a county fair. The winning farmer, Arthur Hoggett, brings him home and allows him to stay with a female border collie named Fly and her pups.

A duck named Ferdinand, posing as a rooster in order to keep from being eaten, wakes the farm each morning by crowing. He persuades Babe to help him destroy the alarm clock because it threatens his mission. Although successful, they wake the Hoggetts' cat, Duchess, and all three accidentally destroy the living room, leaving them covered in paint. Fly's mate Rex orders Babe to stay away from both Ferdinand (now a fugitive) and the house. When Fly's puppies are put up for sale, Babe asks if he can call her ‘Mom’.

Christmas time brings a visit from the Hoggetts' relatives. Babe is almost chosen for the Christmas dinner but a duck is picked instead after Arthur remarks to his wife Esme that Babe may bring a prize for ham at the next County Fair. The day after Christmas, Babe alerts the farmer to some sheep rustlers. The following day, Arthur sees Babe sort the hens, separating the brown ones from the white ones. Impressed, he takes the pig to the fields and tells Babe instead of Rex to herd the sheep. Encouraged by an elder ewe named Maa, the sheep cooperate, but Rex sees Babe's actions as an insult to sheepdogs and eventually confronts his mate for "putting ideas in Babe's head". Fly's right front leg is injured and Arthur's right hand is bitten by Rex while trying to intervene. Rex is then chained to the dog house and sedated. This may be the opportunity Babe finally needs to live his dream of being a sheepdog.