Plot

The main character lives with their parents, Arvin and Ione, in South Pawville on an island of dogs or cats. Arvin, the main character's father, is the owner of the Magic Hat, a hat that has been passed down in your family for many generations. The game starts with Arvin explaining to the main character its great magical power, and how terrible it would be if it were to fall into the wrong hands. Arvin says when he received it he vowed to use it only for good, and that he has kept that vow by using the Magic Hat to keep peace on the island. He then talks about rumors of an evil wolf, Ivlet, who had just been imprisoned on the island, and says he will need to be more careful with the hat and protect it.
While the main character is playing with their friend, Victor, he suggests they go visit Ivlet in the jail out of curiosity, ignoring the warning of elder Augusta to leave him be. Ivlet convinces them to bring in the Magic Hat for him to see, purportedly inspects it, and claims it is damaged. Then, he tricks the main character into nudging it closer so that he can show them the supposed tear. This lets him lunge for the hat, swipe it, and use its powers to free himself, hinting that he intentionally got himself imprisoned to get closer to the Magic Hat. He destroys much of South Pawville with magic fireballs, including the Zoo, magically hypnotizing its animals to escape and scatter across the world. He also makes the world's wild animals aggressive and destroys many bridges connecting the world, making travel difficult and dangerous. Since he is using the Magic Hat with an evil heart, he forces out its good side, anthropomorphized as Beat, who will guide the main character throughout their travels.
Ada, the police officer of the island, initially puts the main character in jail for allowing Ivlet to go free. However, Victor takes the blame for the incident and, with Augusta's support, voluntarily takes the main character's place. The residents of the island, warning the main character to leave Ivlet to the adults, give them various small tasks to help everyone recover, making restitution for their role in freeing Ivlet. They hand out treats to cheer everyone up, fetch materials for repairing the building and facilities of the towns, begin corralling the Zoo animals home, and help with whatever other troubles arise. 
As the island rebuilds, the main character is able to enter more and more of the world, facing more and more danger. However, Ivlet returns to South Pawville. The residents try to scare him off, but he ignores them, summoning a rainstorm that envelops the town. The main character drives away the storm with Apollo's Flower from Dolphin Coast, but they are tasked with meeting the powerful wizard Theophilus to figure out how to stop Ivlet for good. To reach him in Sky Heights, they must remove the brambles Ivlet used to block its gate in Tail Heights, then navigating through poisonous bogs to reach his residence. 
After the main character character arrives, Theophilus hatches a plan to conjure the Magic Shield to make Ivlet defeatable, tasking the main character to enter especially dangerous places and find its constituent parts. These are the Water Crystal from Monolith Isle's Bubble Cave, the Earth Crystal from Inferno Cave, and the Ice Crystal from Polar Fields. They must hurry, because Ivlet is becoming more powerful and evil, represented by the Magic Hat darkening from blue to a dull grey. For the Water Crystal, the main character must first free the island from its eternal night, which Ivlet cursed it with after the guardian of the Water Crystal, Noel, refused to guide him to it. For the Earth and Ice Crystal, the main character must navigate through Crystal Caverns to reach their homes and obtain protective clothing from their residents. To help create the Magic Shield, Theophilus enlists the main character character to retrieve his brother, Bartholomew, from Gongoro Peak. Along the way, the main character seals the whirlwinds of Lonesome Park, which Ivlet released with the Magic Hat's power. Their plan is working, but Ivlet is watching them, and he is becoming even stronger. He transforms into a beastly, feral form, using a pitch-black Magic Hat to birth the Chaotic Dragon to serve him.
Having created the Magic Shield, Theophilus and Bartholomew bring the main character into the Dimensional Rift, where Ivlet and his minion reside. Using its power, Theophilus protects all three characters, and then he seals the Magic Hat, preventing Ivlet from calling upon it to become even stronger. The main character then must defeat the Chaotic Dragon and Ivlet to reclaim the Magic Hat. The Chaotic Dragon fades into nothingness, and Ivlet reverts to his normal form, pulled into a dimensional rift and seemingly banished to an unknown fate. Before the Dimensional Rift collapses without Ivlet and the Magic Hat maintaining it, the group returns to Sky Heights. Here, Beat again merges with the Magic Hat in a sad farewell, restoring its good side to make it harder to use for evil again. The player character then returns the Magic Hat to their parents, who are overjoyed to see them again and very proud of them. In recognition of their achievement, Arvin bestows the Magic Hat to the player character to watch over it, just as he once did.
Trivia
* When Ivlet enrages the wild animals, Jade Fields is shown having several enemies it does not have in normal play: a Buffalo and Komodo Dragon on land, and an Alligator in the river.
* Two of the pillars in the Dimensional Rift, the star and moon pillar, resemble the star and moon on the gate to Sky Heights, hinting a possible connection between Theophilus's magic and the Magic Hat. However, while the Sky Heights gate has a bright sun, the Dimension Rift pillars have a lightning bolt, perhaps referencing Ivlet's storm on South Pawville.