Puppetino starts playing an organ grinder, causing Pinocchio to dance uncontrollably and slowly transform back into a puppet. Puppetino recognises Pinocchio and uses Twinkle to lure him into joining the carnival. Pinocchio looks for work at the carnival and is entranced by a blonde marionette named Twinkle. Pinocchio runs away in shame, leaving Willikers behind.

The ruby turns out to be a fake and Geppetto is furious. Scalawag the raccoon and Igor the monkey, who trick him into trading the box for the 'Pharaoh's Ruby'. En route he encounters con men Sylvester J. After the party, Pinocchio offers to deliver a jewel box to the mayor for Geppetto.

Pinocchio, surprised, exclaims 'Gee willikers!' and the bug takes the name 'Willikers'. She brings to life one of Pinocchio's own carvings, a wooden glow-bug, to act as Pinocchio's conscience. The Good Fairy appears and teaches Pinocchio that love is his most powerful gift. Grumblebee hastily leaves the area.ДЄ year after being made human by his Fairy Godmother, the boy Pinocchio celebrates his first birthday with Mister Geppetto. Stakes and ropes fly from the ship and a circus tent forms. A man named Puppetino, a puppet-master, remarks that this is the ideal spot for the carnival. A bumblebee named Lieutenant Grumblebee is woken from his sleep by the arrival of a large sinister-looking ship.