The Narrator of the cartoon introduces Foxy Loxy once he approaches a fenced community of turkeys, ducks, chickens, and geese and has in mind to sink his teeth into them. Instead of causing a ruckus and risking the farmer's shotgun, he pulls out a book all about psychology. When he reads through it, he decides to point out who he thinks is the most stupid out of the group of birds. He ponders over choosing either the more or less leader of the birds, the proud Cocky Locky, a gossiping hen named Henny Penny, the pessimistic Turkey Lurkey, or the drunken Loosey Goosey or Ducky Lucky. He chooses to target a dim minded yo-yo champ named Chicken Little. He breaks off a piece of wood from an astrologist'sadvertisement, uses a cigar to create wind, fakes a rain and thunderstorm, drops the piece of wood on Chicken, and whispers to him that the sky is falling and doom is imminent. Chicken Little, of course, runs all over the community, exclaiming that the sky is indeed falling. While many of the birds are scared of this, Cocky Locky steps in and shows everyone that what Chicken Little got hit with was nothing more than a piece of blue wood.
Despite this setback, Foxy decides on a different approach. After reading further in his book, he finds that spreading gossip and fear just by saying a few minor words is enough to make people loose faith in Cocky Locky. He poses as a woman, sneaks in on Henny Penny's conversation with other gossiping chickens, and proposes the idea that Cocky Locky might be wrong, and if he is, they could all be killed. He then sports eye glasses and proposes to Turkey Lurkey and his friends that Cocky Locky could be showing signs of dictatorship. For the drunken ducks, he sloppily tells them that Cocky might be crazy, or as one duck describes, might not "...have all his marbles." The more gossip that spreads, the less the other birds trust Cocky Lockey, much to his dismay.
Foxy Loxy tries one more trick, that being to convince Chicken Little that he was right after all and the other birds should deem him leader. Cocky Locky tries one more time to speak out against this ridiculous idea, by saying that if the sky truly was falling, then a piece of it should hit him right on the head, to which Foxy Loxy shoots another piece of wood right to his head. This sends the rest of the birds into a panic as they ask Chicken Little what they should do. Foxy whispers into Chicken's ear that they should retreat to a cave that sits just a few steps away from the fence. All of the chickens, ducks, turkeys, and geese follow Chicken out of the pen and towards the cave where they are trapped by an awaiting Foxy Loxy.
Though the Narrator assures the viewers that everything will be alright, he is shocked to find a plump Foxy Loxy finishing a wishbone and adding it to a collection of wishbones assembled into long rows, meant to be grave sites of the birds that once were. The Narrator was so sure that this story didn't end this way in his book, to which Foxy Loxy simply replies, "Oh, yeah? Don't believe everything you read, brother", all the while smoking on a cigar and playing with Chicken Little's yo-yo.
Foxy Loxy is supposed to represent Hitler, and the book he read was originally going to be Mein Kampf, according to Leonard Maltin's commentary on this short for its DVD release. The birds' gravesites were also meant to have swatstikas instead of wishbones, thus creating a metaphor for the effects caused by Hitler's influence and power. However, Walt Disney decided to have them replaced with wishbones and a psychology book because he wanted to prevent the short from becoming outdated after the war. The pages Foxy Loxy read, however, do come from Mein Kampf.