One afternoon while watching television, Homer and Bart see a highly distracting commercial for something named "Gabbo". The advertisement is the start of a viral marketing campaign around Springfield to build interest in whatever "Gabbo" is. Finally, "Gabbo" is revealed to be a ventriloquist's dummy. Ventriloquist Arthur Crandall announces that Gabbo's new program will air in direct competition with the established Krusty the Klown Show on each afternoon at 4 p.m. Gabbo's catchphrase — "I'm a bad wittle boy" — instantly charms his intended audience, and this has a negative impact on Krusty and his show. The clown vows to withstand the competition from the new program, but Gabbo's cutthroat tactics quickly attract Krusty's audience. Krusty tries to fight back with a dummy of his own, but due to its gruesome appearance and poor condition, it falls apart, and scares off many of the children in the audience. Even The Itchy & Scratchy Show abandon Krusty, move to the Gabbo Show, and are replaced with the strangely incomprehensible Eastern European cartoon "Worker and Parasite" (in the style of Priit Pärn) with characters resembling them. Eventually, Krusty's ratings hit rock bottom, and then his show is cancelled.
Left without work and without having built a nest egg, Krusty falls on hard times and begins suffering from depression. Meanwhile, Bart and Lisa, all along unimpressed with Gabbo, decide to try and help Krusty. When Bart sneaks into the studio where they are filming Gabbo, he overhears Gabbo referring to children of Springfield as "S.O.B.'s" while the cameras are switched off. He manages to distract the cameraman and turns the cameras back on as Gabbo continues this rant. This adversely affects Gabbo's reputation, and Kent Brockman reports it on the news. But he repeats the same "S.O.B.'s" gaffe, is fired from his job, and Gabbo escapes unscathed. Meanwhile, Krusty is still down in the dumps without a job. After visiting his house and seeing photos of Krusty's celebrity friends, Bart and Lisa suggest he host a comeback special. They begin recruiting major celebrities to appear on Krusty's special: Bette Midler, Johnny Carson, the Red Hot Chili Peppers, Hugh Hefner, and Luke Perry (Krusty's "worthless half-brother"). They also try to recruit Elizabeth Taylor, but her agent declines the invitation before they can speak to her.
Bart and Lisa return to Krusty to declare their success, only to find him morbidly obese from drinking several milkshakes after believing them to be weight-loss shakes. Fortunately, the entire Simpson family helps get him back into shape before the special airs.
Krusty's comeback special features his reunion with Sideshow Mel, Perry getting shot out of a cannon, the Red Hot Chili Peppers singing "Give It Away" in their underwear, Carson lifting a 1987 Buick Skylark over his head and Krusty and Midler singing "Wind Beneath My Wings". The show is a great success and Krusty's career gets back on track. While watching the special at home, Taylor remarks to herself that she should fire her agent. Afterwards, everyone heads to Moe's for an after party, where they toast Krusty and watch Carson as he plays the accordion while balancing Grampa and Jasper on a bench on his head.