After being utterly bored of watching the same movie 60 times in a row, Grim takes Billy and Mandy to "Underworld Video" where they rent "The Legend of Chupacabra". While Billy watches the tape, a small, pink chupacabra emerges from his television and Billy decides to keep it as a pet, naming it Daisy. Mandy and Grim convince Billy that he is inept in taking good care of pets, and they return the blood-sucking chupacabra to the videotape.

The day before Christmas, Billy, Mandy and Grim go to the shopping mall, where Mandy complains that Santa Claus is just an invention from corporations. Grim assures Mandy that Santa is real, and they even went to college together. They decide to travel to the North Pole and meet Santa, but when they arrive Mrs. Claus tells them that Santa Claus has been transformed into a vicious vampire.

When Billy decides he wants to grow up to be like Grim, he says nothing will stand in the way of their friendship. They meet a girl named Blandy, who looks very much like Billy, and Billy falls completely head-over-heels in love with her. When Blandy shows romantic interest in Grim, Billy is struck with mad jealousy and wants Grim out of the picture. Mandy consults Grim's encyclopaedia of monsters and realizes Blandy is actually a creature from another dimension. Despite Blandy showing her true form and leaving, Billy remains madly romantically infatuated with her; but only up until the following episode.

When Billy destroys Grim's favorite childhood toy, Fancy Jake, Grim feels devastated and wishes he had never lost the limbo game that made him become Billy and Mandy's best friend forever and ever. A lawyer appears saying that although the game is legally binding while all parties remain on Earth, it is not if Grim leaves Earth. In consequence, Grim follows the lawyer's advice, opens a mystical portal, and leaves. With Grim traveling aboard his spaceship, the lawyer takes off his disguise and introduces himself as Morg, the Martian Grim Reaper, who is also Emperor of Mars and commands an army of Martian, brain-eating zombies.

A scene of Endsville two weeks into the future shows a dystopian world ruled by the "Lord of Horror", who wields the all-powerful artifact known as "Horror's Hand". At the same time, two robotic replicas of Billy and Mandy are sent into the past, to stop the real Billy and Mandy from interfering with the current events.orror's Hand to rule the world.

When Billy accidentally food-poisons Miss Butterbean, Principal Goodvibes offers Grim the job of substitute teacher, which Grim accepts as now Billy and Mandy have to obey him. Grim sends misbehaving students to the "Detention Dimension", a place of eternal classroom punishment, until only Mandy remains in his class. Grim tricks Mandy into opening a portal and she is dragged into the dimension too. Mandy proves to be more terrifying than Miss Slither, the giant, rattlesnake-like creature in charge of the Detention Dimension, that Mandy escapes the place and takes revenge on Grim by sending him there too.

When Billy is sent to bed after playing with his Dr. Brainiac action figure, he wishes he had an adventure. He notices a strange light outside and wanders into a corn field to investigate; he encounters Sperg, and both of them got caught by a UFO's tractor beam. Inside the extraterrestrials decide to experiment on them.

As Billy, Mandy, and Irwin need to write a school report on tall tales, Grim tells outrageous tall tales about Pecos Billy (based on Pecos Bill), Paula Bunyan (based on Paul Bunyan), and John Henry. In Grim's stories, Pecos Billy (Billy) tames a twister using his personal laser-shooting cow-like spacecraft, saving an Arizona trailer park; Paula Bunyan (Mandy) uses her blue ox companion, Babe, to stomp over a villain, creating the Grand Canyon in the process; John Henry (Irwin) digs through a tunnel so fast that he breaks the laws of physics and bursts into the "eighth dimension". After Grim tells them the stories, Mandy informs Billy and Irwin that he is trying to get them F's.

When Grim cannot take any more abuse from Mandy, Billy tries using Grim's scythe to shrink her to mouse size. Instead of shrinking, Mandy becomes a giant and destroys Billy's house. Although Mandy enjoys being a giant for a while, there are inconveniences, as she keeps growing as time passes, and she wants to return to her normal size. Billy is the only one who can cancel the curse he put on Mandy, and he refuses to do so. Mandy grows bigger than the planet, and she finds herself in the "Realm of the Infinite" with other creatures that grow at infinite pace. Mandy starts bossing them around to please her.

When Billy's dad drives Billy, Mandy and Grim to the hamburger restaurant, they somehow end up in Mexico. There, the people are celebrating Dia de los Muertos, but local kids say it may be the last celebration ever, because Del Uglio, a masked and ugly luchador, is set on stealing the "Golden Nose of Chipotle", a prehispanic relic on which the festivity is based. To get to the nose, Del Uglio has one half of the map, while the other half is held by his lost twin brother, who turns out to be Billy. Grim defeats Del Uglio, but it is Mandy who keeps the golden nose for herself, which makes her rich.

When Billy starts taking pictures with a camera found in Grim's trunk, Grim tells him that is an Underworld's True-heart Camera, which shows the real essence of a person's heart. When Mandy takes Irwin's picture, it is revealed that he is actually half-good and half-evil. Irwin explains that although he was born evil, his dad taught him about love and respect, and he had a change of heart. Upon knowing this, and against her own wishes, Mandy also experiences a painful change, turning good and kind-hearted. Mandy and Irwin finally share a romantic kiss in this episode, but it makes Mandy revert to her old dark and sinister self, which was Irwin's true intention, as he likes her just the way she is.