King Fred is the ruler of a Kingdom called Cornucopia. Life in Cornucopia is wonderful for most of the inhabitants, except for those who live near the Marshlands. The people who live near the Marshlands are very poor, and they tell tales of a monster called the Ickabog that lives in the marsh and eats sheep and perhaps people. King Fred has two friends, Lord Spittleworth and Lord Flapoon, who use flattery to get the king to do what they want. Two families live near one another in Cornucopia, the Dovetails and the Beamishes. The parents in both families work for the king: Mrs. Dovetail is a seamstress, Mr. Dovetail a carpenter, Mrs. Beamish a pastry chef, and Major Beamish the head of the Royal Guard. The children in the two families, Daisy and Bert, are best friends until a tragedy occurs. Mrs. Dovetail dies from being overworked by the king, which leads Daisy to publicly insult the king. Bert and Daisy fight about this and their friendship seems to be over.
King Fred is very concerned about being popular and respected, so he decides he will do something that will go down in history. When a man from the Marshlands asks the king to punish the Ickabog for stealing his dog, the king decides to take the Royal Guard and hunt down the Ickabog. When they get into the marsh, a thick fog surrounds them. King Fred believes he has seen the Ickabog and becomes terrified. He sends Lord Spittleworth and Lord Flapoon into the fog, and Lord Flapoon accidentally shoots Major Beamish. Lord Spittleworth, Lord Flapoon, and Major Roach (who is promoted due to Major Beamish's death) decide to pretend that the Ickabog killed Major Beamish. The King and his party return to the palace with fear and sadness.
Upon returning to the palace, King Fred retreats to his chambers and Lord Spittleworth more or less takes control of Cornucopia. He spreads the idea that the Ickabog exists and says that anyone who challenges this belief is a traitor. He also institutes an Ickabog Tax that he says will pay for an Ickabog Defense Force to guard the Marshlands, but he actually steals most of the money for himself. To scare people into believing the Ickabog Tax is necessary, Lord Spittleworth puts together a group of soldiers called the Dark Footers to fake Ickabog attacks. They do this with four giant wooden feet carved by Mr. Dovetail, who is kidnapped and put in the dungeon to carve them. Meanwhile, Mr. Dovetail's daughter Daisy is kidnapped and taken to an orphanage far from her father which is run by a drunk, uncaring woman.
The people of Cornucopia grow poorer and poorer due to the Ickabog Tax, and discontent begins to build. Bert and his mother Mrs. Beamish realize what is going on with the wooden Ickabog feet and Mrs. Beamish attempts to confront the king. Mrs. Beamish is put into the dungeon, and Bert must run away. Bert and Roderick Roach, the son of Major Roach, end up in the same orphanage as Daisy.
Daisy, Bert, Roderick, and a girl from the Marshlands named Martha attempt to escape the orphanage. They nearly die due to a winter storm, but they are saved by the Ickabog. The Ickabog takes them to its cave and tells them it is the only Ickabog in existence. The Ickabog believes it must have children and teach them to kill humans for Ickabogs to continue existing.