Gramma tells her grandkids the story of young Theodore, whose toys come to life whenever they’re alone in the nursery.  They yearn to become real someday, but as Horse tells the others, toys only become real through a child’s love.  Theodore’s nanny gives him a velveteen bunny to help him sleep, and Bunny is so cuddly and soft, it immediately becomes Theodore’s favorite toy, accompanying him everywhere. 

After Theodore recovers from a scary bout of scarlet fever, the doctor instructs Nanny to get rid of all the contaminated bedding…  and Bunny too!  As poor Bunny awaits its fate in the trash heap, the Magic Nursery Fairy arrives to make the velveteen rabbit real because he’s been truly loved.