On the colony world Terra Alpha, "killjoys" who persist in deliberate displays of public grief and depression are hunted down and killed by the Happiness Patrol; Silas P, an undercover Patrol officer, already has 47 killjoys to his credit, to the satisfaction of colony leader Helen A. The Doctor and Ace arrive to investigate rumours of something evil happening on the colony, and find the streets filled with jolly elevator music from ubiquitous speakers. After meeting officious census taker Trevor Sigma they discover bullet holes in a bench in a nearby street. Convinced the rumours he heard were correct, the Doctor plans to get himself arrested.

The Doctor and Ace find a Happiness Patrol led by Daisy K repainting the TARDIS a more fun colour, and easily convince her that they're two alien spies. They are taken to the "waiting zone", a nearby street portioned off by a pleasantly coloured line; there are no dreary prisons on Terra Alpha, but if they cross the line their guard Priscilla P will gun them down without a second thought. Also in the waiting zone is Harold V, Helen A's former gag writer, who was captured by the Happiness Patrol when he investigated his brother's disappearance and learned that many other colonists had "disappeared" as well. Harold V tells the Doctor and Ace about the seamier side of Helen A's regime -- the Happiness Patrol, the late show at the Forum, and her executioner the Kandy Man, who makes sweets. Harold V is electrocuted while playing the waiting zone's fruit machine, and when Priscilla P cracks jokes about the death, the Doctor and Ace vow to make the Happiness Patrol very unhappy.

Elsewhere in the city, a wandering musician plays the blues on his harmonica, switching to an upbeat jingle whenever a Happiness Patrol passes by, and unaware that he's being listened to by creatures in the pipes beneath the city streets. Harold V's brother faces a firing squad, but the squad is dismissed before firing, and just as he thinks he's been pardoned he is drowned by a flood of liquid candy released by the robotic Kandy Man -- the fondant surprise. Meanwhile, Helen A feeds chocolates to her beloved Fifi, a Stigorax -- a vicious creature like a cross between a dog, a rat and a shark.

The Doctor and Ace innocently begin tinkering with the ignition of the waiting zone's go-kart, and when Priscilla P takes cover behind a corner, the Doctor quickly defuses the booby trap on the go-kart and he and Ace escape. The go-kart breaks down some distance away, and Ace gives herself up to an approaching Happiness Patrol, delaying them while the Doctor repairs the damage and escapes. Ace is taken to audition for the Happiness Patrol, but her guard Susan Q eventually admits that she too is unhappy; all her friends have disappeared and Susan can no longer live the lie of the Happiness Patrol. She allows Ace to escape, but Ace is soon tracked down in the streets and recaptured.

As Daisy K takes Ace back to the waiting zone, they pass a demonstration of drones, workers from the factories outside the city; the drones are drably clad and playing dolorous music, and even if they were allowed in the city this would be grounds for their inevitable execution. Back in the waiting zone (or rather, a different waiting zone, as it moves about the city on a complicated schedule), Ace learns that Priscilla P is upset about her duties as a guard; she preferred being on the anti-terrorist squad, hunting down killjoys and depressive terrorists. Susan Q, thrown into the waiting zone with Ace, confirms her friend's suspicions; Priscilla P is a killer.

As Gilbert M goes to fetch ingredients, the Kandy Man straps the Doctor and Earl to chairs, explaining that he makes sweets so delectable that they sometimes overload the pleasure centres of the human brain; ie, his sweets kill people. The Doctor learns about the fondant surprise, which could hypothetically be redirected to spare its victim; he also learns that the Kandy Man is constructed of functioning confectionary, and tricks the robot into knocking a bottle of lemonade over its marshmallow feet, sticking it to the floor while he and Earl escape.

The Doctor and Earl make their way through the pipes beneath the city, which were once used for transporting liquid confectionary; they haven't been used for a long time, however, and one part of the pipe system is dangerously encrusted with tons of crystallised sugar. Proceeding further, they are confronted by the Pipe People, natives of Terra Alpha, who have been starving since the human colonists drove them underground. They've been learning the language of rebellion from watching Ace, and when they realize the Doctor knows her they escort him and Earl out of the pipes.

Susan Q is dragged off to face the firing squad, but moments later the Pipe Person Wences arrives and rescues Ace. Upon learning of the escape Helen A sends Fifi into the pipes in pursuit, but Ace uses her last bottle of nitro-nine to drive it off. Wences then tries to warn her away from a particular section of pipe, but she doesn't understand what he's saying until it's too late and they're both sliding down the doompipe towards the execution yard...

The Doctor once again runs into Trevor Sigma, and bluffs him into believing the Doctor is a superior official in the system government. The Doctor sets off with Trevor for an audience with Helen A, promising to track down Earl later. Helen A proudly announces to Trevor that, in accordance with systems regulations, she's dealt with her planet's overpopulation problem, reducing the population by 17 percent. The Doctor, who suspects he knows how she's doing it, leafs through a collection of photographs of Helen A and Fifi, and follows Helen into her private office, where she's supervising the imminent execution of Susan Q. The Doctor storms off, grabbing a spray bottle of seltzer and another of lemonade.

On his way to the Kandy Kitchen, the Doctor meets Earl, who's watching as the demonstrators are pinned down by two snipers on a nearby roof. The Doctor confronts the snipers, and when one points a gun directly in his face, the Doctor challenges the sniper to look him in the eye, pull the trigger, and end his life. The sniper finds he's unable to do it, and the Doctor takes their guns and tosses them over the side of the roof. He then continues on to the Kandy Kitchen, where he agrees to use the seltzer water to release the Kandy Man on condition that the Kandy Man then divert the fondant flow from the execution yard. The Kandy Man does so and then tries to kill the Doctor, but the Doctor uses his lemonade spritzer to stick the Kandy Man to the floor again.

The doorman eventually finds Ace Sigma on his "miracle survival" list; if she survives it'll be a miracle. The Doctor heads for the Forum to wait for Earl and the drones, and meets Trevor, who's on his way back to Earth with his report and a list of the "disappeared" -- which the Doctor is disgusted to note stretches out the length of Forum Square. Meanwhile, Helen A tends to the recovering Fifi and sends Priscilla P and a Happiness Patrol squad to the Forum for the mass disappearance of the approaching large-scale depression.

Daisy K and her Patrol reach the Forum with Ace and Susan Q, only to find the Doctor laughing hysterically at them; he's happy to see Ace and Susan Q and he's throwing a party for the drones, and since none of them are unhappy, the Happiness Patrol can take no action against them. In fact, when Priscilla P's squad arrives the only unhappy people in the square are Daisy K and her squad. The Doctor, Earl, Susan Q and Ace retreat to the pipes to make their way back into Helen A's palace, leaving the two Happiness Patrol squads fighting while the drones set off to take their impromptu party to the sugar refineries outside the city.

Helen A releases Fifi back into the pipes to take her revenge on the Pipe People, but the Doctor lures it to the pipes encrusted with sugar and has Earl play a certain note on his harmonica; the resonance causes the sugar to crumble, crushing Fifi under tons of crystallised sugar. The Doctor and Ace continue on to the Kandy Kitchen, where they use a blast of heat and flame from the ovens to drive the Kandy Man into the pipes. The Pipe People then emerge and activate the flow of fondant surprise, melting the Kandy Man's candy exterior and flushing his remains into the executioner's yard. Joseph C and Gilbert M study the remains, and Gilbert M explains that he constructed the Kandy Man after fleeing to Terra Alpha from the planet Vasilip, where he'd accidentally engineered a deadly virus in a government lab and wiped out half the planet's population.

Priscilla P places Daisy K under arrest and takes her to the waiting zone, but Helen A orders her release and has Daisy K brought to the palace to organize the fight against the rebels. But more and more factories fall to the rebellion, contact is lost with the Kandy Man, and Susan Q and Earl overpower Priscilla P and shut down the waiting zone. Helen A packs up and prepares to flee in her escape shuttle, only to find that Joseph C and Gilbert M have beaten her to it and departed the planet.

The Doctor and Ace let Susan Q and Earl into the palace, where they overpower Daisy K and shut down the omnipresent lift music. As Earl's blues harmonica echoes through the city's PA system, the Doctor heads out into the streets and finds Helen A heading for the spaceport and the next scheduled flight. She insists that everything she did was for the good of the community and those who wanted happiness, but the Doctor points out that the happiness she offered was cosmetic; true happiness requires sadness to balance it out. Helen A refuses to listen until she sees Fifi crawl out of a manhole and die before her eyes, and Ace arrives to see the Doctor observing Helen A sobbing uncontrollably over Fifi's body.