Delving into sensitive social issues, this animation comedy revolves around Stan Marsh, Kenny McCormick, Kyle Broflovski and Eric Cartman, four curious youngsters. They head to the local movie theater to see the new film Terrance and Phillip: Asses of Fire which stars the boys' favorite Canadian comedy duo Terrance and Phillip ("Mountain Town"), but when the boys get there, they are refused entry due to the film being rated R by the MPAA, so they pay a homeless man to accompany them. The boys learn obscene phrases from the movie ("Uncle Fucka") which makes the other kids in town want to see the movie.
Stan finds his love interest, Wendy, ice-skating with a well-educated boy from Yardsdale named Gregory ('Wendy's Song'). Whenever Stan tries to talk to Wendy he throws up (Wendy is now starting to be disgusted by his frequent vomiting, unlike in the show), so he asks Chef for advice on how to impress women. He is told that all he needs to do is to find the clitoris. Stan does not know what the clitoris is, but nevertheless searches for it throughout the film.
The kids begin cursing in class, so they are sent to see Counselor Mackey who informs their mothers. Learning that the language was from the movie, their parents force the teachers to enforce a strict dress code banning all types of Terrance and Phillip clothing and abandon their previous lesson plans and run a rehabilitation center for the kids to get them to stop swearing.
Afterwards, the boys and the rest of the children go to see the movie again. Kenny bets Cartman $100 that he can set his fart on fire like Terrance did in the film. Kenny immolates himself and dies when the doctors accidentally replace his heart with a baked potato. The boys are grounded and Kenny is refused admission to Heaven and sent to Hell ("Hell Isn't Good"), where he is tormented by Satan and Saddam Hussein who are gay lovers.
The parents of South Park organize a boycott against Terrance and Phillip ("Blame Canada"), which is led by Sheila (Kyle's mother). The new group, called "Mothers Against Canada" has Terrance and Phillip arrested as war criminals, and when the United States refuses to release the duo, Canada strikes back by bombing the residence of the Baldwin brothers.
Sheila, now the appointed as "Secretary of Offense of the United States" and President Bill Clinton announce that the United States will go war with Canada and will have Terrance and Phillip executed at an upcoming USO show. After overhearing Cartman leading the kids in annoying Kyle with a song degrading herself and admonishing her ridiculous methods ("Kyle's Mom's a Bitch"), she has Dr. Vosknocker forcibly implant a V-Chip in Cartman.
The device gives sharp violent electrical shock every time Cartman swears. Meanwhile back in Hell, Satan declares that if the blood of the two innocent Canadians touches American soil, it will be time for him to rise up and rule the world. Saddam wants to come with him, but Satan is tired of being bossed around by Saddam ("Up There"). Kenny tells Satan to break up with Saddam to which Satan initially agrees, but Saddam wins back Satan with a song ("I Can Change"). Kenny's ghost visits Cartman to warn him of the consequences of executing Terrance and Phillip.
The boys, after failing to convince their parents, decide to take matters into their own hands ("What Would Brian Boitano Do"). They have a secret meeting to talk about how they can save Terrance and Phillip. They form La Resistance and Gregory tells Stan to recruit a God-hating French expert on covert operations named "The Mole" ("La Resistance").
While the troops, waiting for the execution of Terrance and Phillip, are being entertained by Big Gay Al ("I'm Super"), La Resistance and The Mole infiltrate the USO show, but The Mole is discovered by Sheila and the guards and is killed by guard dogs after Cartman fails to deactivate the alarms ("The Mole's Reprise"). The remaining three children attempt to warn their mothers and the army about what will happen if Terrance and Phillip are killed, but they instead laugh at them, and Mr. Garrison throws the switch to the electric chair.
A large Canadian force attacks the base and a massive battle ensues between the two armies. In the confusion, the boys are able to free Terrance and Phillip, though Cartman's V-chip begins to malfunction. The other moms, seeing the destruction their "Mothers Against Canada" movement has incited, decide to call it quits and head off to look for their children. After being stunned by an explosion, Stan has a hallucination and is visited by "The Clitoris" which tells him that all he needs is confidence if he wants to win Wendy's heart and also reminds him about what's more important: saving the world.
Stan leads the kids to find Terrance and Phillip who have been cornered by the US army. La Resistance form a human shield while Kyle tries to persuade the army and his mom against killing the two. Sheila shoots Terrance and Phillip which fulfills the prophecy and results in Satan, his minions, and Saddam rising from Hell and attacking both Canadian and United States armies. Saddam immediately tries to usurp Satan's authority, demanding homage and announcing his intent to rule the world himself.
Cartman is able to hold Saddam off by using his malfunctioning V-Chip to generate massive blasts of lightning every time he swears. With Kenny's encouragement, Satan finally gets rid of Saddam by casting him back to Hell and getting impaled on a sharp stalagmite. Satan grants Kenny a wish in repayment so Kenny asks for everything to return to how it was before the war, even though it means he'll go back to Hell. He takes off his hood to say goodbye to his friends, revealing his face for the first time.
All the other deceased characters are brought back to life, the Canadians and Americans become friends again, Wendy becomes Stan's girlfriend again and dumps Gregory, everything returns to normal in South Park ("Mountain Town (reprise)"), but instead of returning to Hell, Kenny ascends to Heaven due to his act of sacrifice-where angels are waiting for him (This implies that anyone who saves Earth from eternal domination causes God to overlook him/her not being a Mormon).
In a post-credits scene, Ike is still in the attic (when Kyle was hiding him from the American soldiers from taking him to an interment camp) and then eats a mouse that scampers by.