In the second Sesame Street theatrical film, fourteen years after Follow That Bird, Elmo spends time with his favorite blanket. When Zoe wants to play with it, Elmo doesn't want to share it, resulting in a tug-of-war leading to Telly Monster accidentally taking it away while rollerskating uncontrollably. Oscar the Grouch ends up catching it, sneezes on it, and throws it into his trash can. Since Oscar wasn't in his trash can when Elmo finds out, he goes into the trash can, where he finds his blanket, but Elmo and his blanket soon fall through a tunnel (which Oscar ends up witnessing and only says, "Have a nice trip! Heh heh!!"). Elmo winds up in Grouchland USA, a world filed with Grouches. The evil Huxley then arrives to take the various belongings, and takes Elmo's blanket as well. Elmo meets a Grouch girl named Grizzy, who shows Elmo where Huxley's castle is, and Elmo sets off to get back his blanket. Meanwhile, Oscar tells the gang that Elmo went into Grouchland, and they all go in search of Elmo. Once in Grouchland, however, they get arrested and thrown in jail since it's against the law to ask a policeman for help in Grouchland. Huxley is aware that Elmo is in search of his blanket, and has his henchmen, Bug and the Pesties, stop Elmo from getting back his blanket. They trick Elmo into going into a shortcut, which leads to the palace of The Queen of Trash. There, when she learns that he's going to Huxley's castle and is believed to be one of Huxley's spies, she has Elmo take the ultimate challenge: blow her 100 raspberries in 30 seconds, which Elmo succeeds with help from the audience. When Elmo gets closer, Huxley gets a giant chicken to stop Elmo. The chicken thinks that Elmo is a worm, but Elmo convinces the chicken otherwise. However, once convinced, the chicken tosses Elmo away. Elmo is about to give up, until a caterpillar encourages him to keep trying. Back at the jail, Grizzy sneaks in to tell Elmo's friends that Elmo is on his way to Huxley's castle. Oscar, admitting that Elmo is his friend, decides to yell out to the Grouches outside that, although Grouches hate working together, they must take a stand. The other Grouches agree, and they get let out of jail to team up and stop Huxley from stealing any more of their stuff. Elmo and the others soon show up and confront Huxley, but Huxley decides to take Elmo's blanket away. Bug soon gets hold of the blanket, and tells Huxley that he's going to give it to Elmo, breaking off his friendship with Huxley. Back at Sesame Street, Elmo decides to share his blanket with Zoe.
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