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John Bennett has been divorced from Lori Collins for six months due to her not accepting Ted again despite her wish in bringing Ted back to life. Meanwhile, Ted marries his girlfriend, Tami-Lynn. One year later, their marriage is beginning to break down so they decide to have a child. As Ted cannot have children, John agrees to help Ted find a sperm donor. They ask Sam J. Jones, but he refuses due to a low sperm count. Then they try unsuccessfully to break into Tom Brady's house and steal his sperm. Ultimately, John offers to donate his sperm (something that Ted wanted to ask him but hesitated due to John's divorce with Lori).
Despite Ted and John's efforts, Tami-Lynn's history of drug use has rendered her infertile and the couple decide to adopt. As background checks are carried out, Ted's legal status as a person is brought into question. The state authorities of Massachusetts declare Ted property rather than a person, resulting in the loss of his job at a grocery store. Furthermore, his marriage to Tami-Lynn is annulled by the government. John suggests that they take the state to court, and their case is assigned to a novice lawyer pro bono, Samantha Leslie Jackson. Despite Samantha's lack of understanding modern culture, the three bond over their love of marijuana as they prepare to present the case.
Meanwhile, Donny, Ted's unstable life-long stalker and arch rival is now employed as a janitor at the headquarters of toy company Hasbro, in New York City. He convinces the company CEO to hire an expert attorney to ensure that Ted maintains his status as property, therefore leaving him open to seizure by the firm to create more living teddy bears.
Despite Samantha's best efforts, the court rules against Ted. Disheartened but determined, the trio decide to contact Patrick Meighan, a highly respected civil rights attorney, hoping he will take the case and overturn the court's decision. Driving to Manhattan to meet him, Ted crashes into a hidden marijuana patch, where Samantha and John realize their attraction for each other. The next day, the trio meet Meighan, who is sympathetic to Ted's plight but ultimately refuses the case, as he believes he has not significantly contributed to humanity due to his juvenile slacker lifestyle.
With all hope seeming lost, Ted, angry at the injustice and jealous of Samantha and John's new relationship, wanders off. Donny follows him as he wanders into the New York Comic Con. Once inside, Donny, dressed up as Raphael, attempts to kidnap Ted, who flees and contacts John for help. John and Samantha arrive at Comic-Con and search for Ted, arriving as Donny is about to cut him open. As they make their escape, Donny cuts the cables holding up a model of the USS Enterprise and it swings towards Ted. John pushes Ted out of the way, takes the hit, and is knocked unconscious after being pinned under a TV wall. Donny is arrested after Ted identifies him among other Ninja Turtle cosplayers.
At the hospital, Samantha, Ted and Tami-Lynn rejoice when John recovers. Meighan decides to take the case, telling them he has been inspired by John's selflessness and Ted's emotions over his nearly fallen friend. Meighan gets the ruling overturned by demonstrating that Ted is self-aware, that he feels complex emotions, and is capable of empathy. Outside the court, Ted re-proposes to Tami-Lynn. After they are re-married, Ted and Tami-Lynn, adopting the surname of "Clubber Lang", adopt a baby boy, whom they name Apollo Creed, while John and Samantha happily pursue their own relationship.