Although Sir Loungelot is usually too lazy to do any quest that is not forced or threatened by King Allfire, Queen Griddle, or Princess Flame, there is an exception: Rescuing damsels in distress. Loungelot goes on damsel patrol with Flicker, while fashion designer Pierre Un Deux Trois arrives at Castle Camelhot with his new clothing designs. Allfire and Flame don't like them much (Pierre dressing Flame up as a jester), but Griddle and Sir Blaze love them.
Flicker and Loungelot find a damsel in distress named Cassandra, who is being "attacked" by a spider on a spiderweb. Loungelot is afraid of spiders and refuses to go near it. Flicker takes the spider off the spiderweb, thus "saving" Cassandra, who falls in love with him.
On the way back to Camelhot, they find another damsel being attacked by a giant three-headed dog. Loungelot is not afraid of this beast in the slightest and fights it. In the middle of the fight, it vanishes in a puff of smoke, as the "damsel" is really an old hag, the Hag of Giss (and sister of Merle the Wizard), who turns Loungelot into a newt.
In the meantime, Cassandra comes over to Camelhot, which makes Flame jealous, although she later begins to like her.
Loungelot doesn't want anyone else to find out that he has been turned into a newt for fear that he will be the laughingstock of Camelhot. Unfortunately for him, Griddle needs him as an escort to the fancy dress ball since Allfire said his gout was flaring up (while he is really playing poker with the knights to avoid going to this ball). Flicker uses an invention to animate a suit of armor, with Loungelot inside the helmet talking.
Since they can't get the dancing right, they decide to find the hag and convince her to turn Loungelot back into a dragon. However, due to many misadventures (including Pierre nearly cooking Loungelot, and him almost being eaten by turtles and a piranha in the moat) they are unable to set out before the guests of the ball arrive, so they return to their original plan with the armor.
Flicker tells Flame everything and she goes to the hag's house and commands her to turn Loungelot back to normal. Instead the hag turns her into a frog, but she tricks her into turning her into a giant two-headed eagle with bat wings and tiger claws. Flame flies off with the hag.
Back at the castle, when Griddle dances with Loungelot, the armor ends up spinning around and crashing, revealing Loungelot in his newt form. Flicker says that Loungelot is trying a new fashion look, and so Pierre makes it his new design. Flame arrives at the castle with the hag, who becomes the guest of honor and leaves with Pierre (whom she falls in love with) after returning Loungelot and Flame to their original forms, and make the newt design the rage in Paris.
As Flicker is about to tell Cassandra he doesn't love her, Cassandra breaks up with him first, saying he isn't newtish enough for her.