Yetis live in the mountains, above the clouds hidden away from sight. Migo is a yeti who lives among his people, and follows the ancient stones held by the Stonekeeper, who leads the village. Migo's father, Dorgle wakes up every morning to ring the gong, with his head so that the "light snail" can pass over the sky ("Perfection"). While learning how to ring the gong, Migo gets distracted by the Stonekeeper's daughter Meechee (Whom Migo has a crush on, since childhood) and flies right out, of the village. Outside the village, Migo witnesses a plane crash, and finds a "smallfoot" who the Yetis have taken, for being legends. Migo runs to tell the villagers what he saw, but has no proof and is labelled as a liar by the Stonekeeper, who banishes him from the village.

Migo is suddenly visited by Gwangi, Kolka, and Fleem who bring him to the Smallfoot Evidentiary Society (S.E.S.), which is led by Meechee, who feels that her father does not listen to her. She convinces Migo to go along, with their plan of going below the clouds, despite the stones telling them that, there is nothing underneath ("Wonderful Life"). After some hesitation, Migo agrees to go, but the rope he is tied to snaps and Migo falls through, the clouds where he discovers land underneath.

At a local bar, Percy Patterson is a wildlife documentary filmmaker, who has lost his fame. He meets the pilot who saw the Yeti, and tries to convince his assistant Brenda to dress up as a Yeti so that they can film their exploits, but she abandons him instead ("Percy's Pressure"). Migo arrives at the local bar, and unknowingly scares Percy when trying to communicate with him. Eventually, Percy tries to attack Migo, and he accidentally knocks himself out, with a tranquilliser gun.

Migo takes Percy away, and they stop by a cave to escape, a blizzard. When Percy wakes up, he films himself with Migo to get help. Percy encounters a sleep - deprived mama bear, and Migo "saves" Percy by apologising. While chasing after Percy, Migo gets his toe caught in a bear trap, and Percy takes pity by bandaging Migo's wound. Migo finally manages to get through to Percy, who agrees to go with him and they head back up the mountain, where they are reunited with the S.E.S. Meechee is so relieved, to see Migo had survived that fall she runs up to Migo, and hugs him. Migo returns Meechee's hug, then both pull away from each other, and blush awkwardly.

The village is confused by Percy's appearance, but happily accept him and learn about his culture, much to Stonekeeper's dismay ("Wonderful Questions"). Meanwhile, Dorgle reveals to Migo, while trying to ring the gong that morning, he missed his cue and the sun rose by itself, scaring him as it left him feeling that, he had no purpose. Afterwards, Stonekeeper takes Migo inside the palace, and reveals the truth to him: Yetis used to live below the clouds, but were scared away by the humans who feared, attacked, and killed the Yetis. To keep them safe, they created the stones that made the laws and rules ("Let It Lie").

The various tasks that the Yetis do, is powering a machine, beneath the village that creates the "clouds", which is actually steam ("Let It Lie"). In order to protect the village, Migo agrees to keep up the lie by saying that Percy, who is beginning to experience high altitude sickness, is just a hairless wild yak which angers and insults the S.E.S, and Meechee is sent to her room, by her father. Then, Stonekeeper takes Percy and locks him in a box, so Percy can get more ill. Feeling bad for Migo betraying his friends and Meechee, Dorgle convinces Migo to help Percy. And, Migo discovers that Meechee took Percy, away to return him home. Migo tries to apologise to the rest of the S.E.S, but they don't forgive Migo. Then, Migo jumps down the mountain with Gwangi and Kolka, following suit.

After dropping off Percy, Meechee becomes distracted by the wonders in the city, and begins to cause a disruption. Percy reunites with Brenda, and discovers he has become famous overnight, due to his video. Meechee is attacked by the police, but is rescued by Migo and the rest where Migo confesses, why he lied. The Yetis try to make it back, to the mountain, but are chased by a SWAT helicopter that is violently, taken down by the Stonekeeper using his stones. Migo sacrifices himself to fend off the police, so that Meechee and the others, can get away. Afterwards, Percy arrives on his snowmobile, and tells Migo that he must "Do the right thing". Percy reluctantly shoots Migo with the tranquilliser gun, making the yeti roar in realisation and agony.

The police chase Migo (Who recovers from, the tranquilliser dart) through the forest. The Yetis watch as Migo gets cornered, by the police and is fatally shot by a gun, while Meechee screams in horror. When the police approach the Yeti, it is revealed to be Percy in a Yeti suit. Meanwhile, the Yetis are surprised that Percy had sacrificed himself, to save them. Suddenly, Migo appears behind his friends and the Stonekeeper, in a dopey state. In the back of the SWAT van, Percy gets out his phone and deletes, the videos and images of Migo and, his friends. Migo states he loves his friends, much to the Gwangi and Kolka's happiness, and to Stonekeeper's confusion, and confesses his romantic feelings for Meechee, who also feels the same as Migo, much to Migo's happiness.

Back at the village inside the palace, Migo and Stonekeeper explain the real truth to the Yetis, while Migo apologises to the yetis for, lying to them. Migo tells the others, that even though humans may still be scared of the yetis, they should still try to communicate with them. To prove this, Stonekeeper gives Migo his staff, and Migo breaks the emergency glass to turn off, the steam for good. Then, the Yetis go outside of the village, and see below the clouds for the first time as Migo and Meechee enter a romantic relationship ("Moment of Truth").

Later that day, the Yetis head down the mountain, towards the village where they are confronted, by the police (Who have put up police cars, police shields and blockades). But then, Percy and Brenda come out from the crowd and stand up for, the Yetis. Soon, all the humans stand up for the yetis, much to the police's confusion and astonishment. The film ends with the humans, slowly welcoming the Yetis and accepting, them into their lives ("Finally Free").

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