The FT Squad ends up in an enchanted realm, populated by fairy tales. Here, they are treated like fugitives by Lord Farquaad, ruler of Duloc. They manage to hide out in a swamp with their new friend Donkey, where they meet Shrek, a grouchy and solitary ogre. When the other fairytale creatures arrive in the swamp under Farquaad's exile, Shrek travels to Farquaad's castle, taking Donkey and the squad with him. After accidentally getting involved in a tournament intended to determine the one who will rescue the lovely Princess Fiona from a fire-breathing dragon's castle, Farquaad decides to assign Shrek to rescue the princess on account that he deals with the Fairytale creatures stuck in his swamp. He'll also agree to let the FT Squad be free if they succeed.
Together, Shrek, Donkey and the squad begin their quest and must bring Fiona to Farquaad. But they discover Fiona has a shocking secret and Shrek isn't the terrifying ogre they thought he was. And Farquaad has his own plans if the squad returns.
- After this adventure, Donkey will join the FT Squad on its adventures.
- As mentioned earlier, this is the first Dreamworks crossover in the series.
- It will be revealed that Farquaad is against Future Time Travel and in his ambition for perfection, sees the FT Squad as a hazard to the kingdom and must be eliminated at once.
- Although frightened of Shrek at first, Rex, Elsa, Dweeb and Woog show sympathy upon learning of his reason for wanting to be alone. They say that like Shrek, they were once thought of as monsters, until they made children's wishes come true and became members of the FT Squad.