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A runt pig is taken away from a factory farm in Australia to a fair where he is given away as part of a "Guess My Weight" contest. The winner, Farmer Arthur Hoggett, takes the pig to his farm in the country. The lonely pig is met by Fly, a kind sheepdog, and her pups, who look after the pig, now called Babe.
Babe meets an old ewe named Maa who tells him that sheepdogs ("wolves") are savage creatures that attack sheep. After seeing how kind Fly is to him, Babe adopts a life-changing philosophy of never thinking badly of any creature. Babe also meets Ferdinand, a duck who, in order to save himself from being eaten, tries to be useful to the farmer and his wife by acting like a rooster. Ferdinand recruits Babe to help get rid of the farmer's new alarm clock, or "mechanical rooster", which does not go too smoothly. Rex, Fly's gruff mate, forbids Babe from ever being near Ferdinand. Babe finds his place in Fly's family again when the puppies have been sold away and he replaces them as Fly's son.
At Christmas time, the farmer's daughter and her husband and two bratty children come to visit. Roast pork is on the menu until the last minute when Farmer Hoggett convinces his wife that roast duck would be a better meal, which turns out to be a friend of Ferdinand's. The change was certainly a good one, for the next day, sheep thieves arrive and steal much of the flock. Had Babe not been there and informed Fly and Rex, many more would have been lost. The farmer invites the pig to join the sheepdogs and him in the fields and, on a whim, gives Babe a shot at herding sheep. Babe discovers a new strategy for sheep herding: to be kind and ask nicely. Rex, jealous of Babe's new ability, attacks Fly and Farmer Hoggett and is given a sedation that will prevent him from being a sheepdog again. The farmer sets up a sheepdog trial arena for the pig, and Fly explains to Babe the tragic story of how Rex lost his chance at being a champion sheepdog.
Wild dogs attack the flock and Babe drives them away, but not before they kill Maa. When Farmer Hoggett arrives he sees Babe with blood on his snout, the only possible but improbable killer, a crime that is punished by death. For the first time, Fly speaks nicely to the sheep to find who really killed the sheep, and in the nick of time, the farmer is informed by police about the wild dogs loose.
When Mrs. Hoggett is away, the farmer submits an application for "Pig" to compete in the National Sheepdog Trials using his fax machine, a Christmas present from their son-in-law. A disgruntled cat tells Babe that a pig's purpose is to be eaten, which causes Babe to run away in the rain and, when he is found, catch a cold. The farmer nurses him back to health, singing "If I Had Words" to him.
At the Sheepdog Trials, the sheep do not listen to Babe. Rex runs back to the farm and the sheep there tell him the password to make them listen to Babe:
"Baa ram ewe
Baa ram ewe
To your breed, your fleece, your clan be true
Sheep be true
Baa ram ewe"
Although initially laughed at and discouraged by the judges, Farmer Hoggett and Babe are allowed to participate. Babe, using the password, flawlessly herds the sheep. When he finishes, he is met with an explosion of cheering and a perfect score.
Babe, now world-famous, accidentally causes an accident in the well. Farmer Hoggett ends up in casts all over his body and sick in bed. The Hoggetts have not been keeping up with their payments and the bank threatens to take the farm away. To save the farm, Mrs. Hoggett must take Babe to a state fair for a generous appearance fee.
When stopped temporarily in a big city-airport, a drug-sniffing dog demonstrates to Babe exactly what he does in his job. Of course, Mrs. Hoggett is now searched vigorously for illegal substances and misses her very important connection. A kind man (with the face of our favorite barnyard animal) gives Mrs. Hoggett the name of a hotel where pigs are welcome. While Mrs. Hoggett is out of the hotel, making a phone call, Babe follows a monkey who stole his bag into a room with four apes: Zootie, her husband Bob, their son Easy, and the commanding Thelonius. Their master, Uncle Fugly, comes home and decides to kidnap Babe and use him in his clown act. While performing the act in a children's hospital, Babe causes another accident, leaving the set in flames and Uncle Fugly with a heart attack.
The landlady leaves the animals in the hotel to be at Fugly's side in his death bed. The chimps, hungry and not desiring to be annoyed any longer by the pig, introduce Babe to a viscous rottweiller and pitbull. After a long chase, the pitbull dangles from a bridge with his head in the water, drowning. The brave little pig saves him and garners the respect of all the animals. After Babe distributes the food out to the animals equally, Zootie gives birth to twins.
A neighbor notices all the animals in the hotel and alerts the authorities. They come and evict them all; except Babe, Tug the monkey, Flealick the wheel-chair bound Jack Russell Terrier, and Ferdinand (who just flew over); and take them to the pound. The four remaining lead a daring rescue attempt, ending up in a large ballroom. The landlady and Mrs. Hoggett, who was out for a long time looking for her pig, arrive. Mrs. Hoggett is wearing Uncle Fugly's clown outfit. After a long sequence of Mrs. Hoggett and a chef bouncing around the room, Babe and the rest are finally recovered. The landlady and her animals all live peacefully on the Hoggett farm and they all live happily ever after.
The neighbor that pulled the plug on the farm, however, is stuck next to a newly opened dance club.
