Peter Rabbit, his cousin Benjamin, and his triplet sisters Flopsy, Mopsy and Cottontail, spend most of their days picking on Mr. McGregor and stealing his vegetables from his garden. They are friends with a local woman named Bea who spends her time painting pictures of the rabbits as well as the surrounding nature. Bea takes on a mother-like relationship with the rabbits due to the passing of their mother and father. One day Peter, accidentally leaves his jacket back in McGregor's garden and goes back to retrieve it. McGregor spots and catches him, but suddenly dies of a heart attack. Enthralled, Peter invites all his woodland friends who have now taken over McGregor's old house.
Meanwhile in London, McGregor's nephew Thomas works at the Harrod's department store where he awaits for a promotion. He coldly accepts the news about his uncle's death, but is infuriated over not getting the promotion and is fired. When he learns that his uncle's house is valuable, he decides to refurbish it so he can sell it and start his own toy store to rival Harrod's. He kicks out Peter and his friends and begins to secretly wall up the garden, despite Bea's objections. When Peter and Benjamin sneak back into the garden, Thomas catches the latter and attempts to drown him. Peter and the triplets rescue him and Thomas accidentally tosses the binoculars that Bea had given him earlier.
Thomas and Peter start a war with each other by setting up traps and other offensive nuisances. Thomas and Bea end up falling in love with each other which causes Peter to become jealous and wanting to separate them more. Bea soon gets mad at Peter for unintentionally ruining her paintings during one excursion and soon she also turns on Thomas when his violent tendencies begin to show. This all culminates when Thomas throws dynamite at Peter's burrow, and uses it to attack Peter in the garden, before telling him that his antics caused him to become aggressive. When Peter detonates the dynamite to prove to Bea that Thomas was using it, he ends up knocking down the tree on top of the burrow, which crushes Bea's art studio. Thinking that Thomas was responsible for the detonation, Bea breaks up with him, and he goes back to London to work at Harrod's again.
Peter feels bad for what he has done, and upon learning that Bea intends to leave Peter and his family, he and Benjamin head to London and finds Thomas at the store. They make up and rush back to the country where Peter reveals that he had activated the detonator, and he and Thomas apologize to Bea for their fighting. Thomas discovers that he cannot go home because a snobbish couple, whom Thomas had an ugly encounter with prior, had just bought the house. Peter and his friends use their tricks to kick the couple out of the house.
During the end credits, it is shown that Bea, Thomas, and the rabbits eventually moved to London together where Thomas has his own toy shop and Bea begins to write and illustrate books based on Peter and his friends. So Funny