As a child, John Bennett is a lonely boy in Boston who can’t seem to make any friends. His Christmas wish for his beloved teddy bear to come to life is miraculously granted, causing a sensation and making the bear a temporary celebrity. The animated teddy, named Ted, becomes John's inseparable companion throughout his childhood, sharing in his joys and comforts in times of trouble. Both grow up together, with Ted retaining his crude, playful behavior into their adulthood. Years pass, and the profound friendship endures, becoming an integral part of John's life, despite Ted's tendency to indulge in inappropriate and hedonistic behaviors.

Now in his 30s, John is stuck in a dead-end job, but maintains a romantic relationship with Lori, a successful and career-driven woman who begins to feel that John's attachment to Ted is holding him back from embracing adulthood and its responsibilities. The ensuing friction between John's loyalty to his childhood friend and the pressures of his relationship with Lori create a struggle for John to find balance. Challenges arise as Ted's antics threaten to upend John's life, forcing him to reevaluate the nature of friendship and the need to mature, while still seeking to preserve the bond that has defined him since childhood.