Plot
S.D. Kluger returns as a train engineer, but still a mailman to answer questions about the Easter Bunny in the children's letters.
The story begins in the small town of Kidville, a community comprising orphaned children (including S.D. Kluger when he was a child) at the foot of Big Rock Mountain. The children enjoy the simple life despite being bothered by Gadzooks the Bear who hates everything to do with the holidays, including birthdays.
One Easter morning, they find an orphaned baby rabbit, raise him as their own, and name him Sunny when they notice how much he likes the warm sun. Now one year old, Sunny makes plans with the children to sell what they make in exchange for what they need, including their eggs, with help from three chickens called the Hendrews Sisters.
Sunny sets off to deliver his eggs. Along the way, he meets a wise, jolly hobo named Hallelujah Jones, who suggests to him that he could sell his eggs in a town that's just called Town. However, upon climbing Big Rock Mountain, Sunny runs into Gadzooks who steals his eggs. After escaping, Sunny makes it to Town which is a dreary, dismal place. There, nobody laughs, everyone dresses in dark clothing, and if any children are born, the whole family has to move away, and beans are eaten for every meal by order of the ruthless Dowager Duchess Lily Longtooth who wants her seven-year-old nephew King Bruce the Frail to follow in her footsteps. Bruce complains about always having to eat beans and wanting to be a normal child instead of being a king, despite his aunt's objections.
Saddened by this, Sunny heads back to Kidville and explains the problem. Hallelujah and the children dip the eggs in various bowls of paint as a way of tricking Gadzooks. He lies to the bear, saying he is on his way to sell colored stones as paperweights. Gadzooks, befuddled by Sunny's lie, lets him go, demanding he bring him eggs.
Sunny makes it into Town again, passing out his eggs to all the townspeople, including King Bruce who crowns him the Easter Bunny, Royal Knight of the Rainbow Eggs. He and Sunny initiate a traditional ritual of eating the eggs. However, Lily, disappointed in her nephew, chases Sunny out, outlaws eggs, and sends him to bed without supper. After Bruce tells Sunny (who apologizes for getting Bruce punished about the eggs) that he knew his supper would be more beans, Sunny promises to bring him very special beans next Easter.
The following year, Sunny, Hallelujah, and Herbert the Baker make the first Easter jelly beans. However, upon their way to Town to deliver them, Gadzooks, still angered by Sunny's lie and thinking his eggs are colored stones again, flings them far, far away. All hope seems lost until all the other children hunt the eggs up in bushes and trees and Sunny decides that he'll always hide them.
Next Easter, Sunny sets out, only to get caught by Gadzooks who chases him to Kidville, where everybody has pitched in to make him a brand-new Easter outfit made by the Kidville tailors. Touched by their gesture of kindness, Gadzooks becomes their friend. Meanwhile back in Town, the townspeople become interested in the Easter eggs Sunny hides, King Bruce and his servants enjoy eating the jelly beans, and the children are loved by all the townspeople. But Lily, outraged, sends her guards out to arrest them. Sunny and the children leave just in time, and promise to return next year.
Next Easter, Sunny has the candy maker come up with a secret weapon of his own for their next visit. Hallelujah suggests Sunny should do something for Bruce so he can stand up to Lily, which Sunny agrees to and goes to the Kidville seamstress and pillow makers for this idea. On their next visit to Town, after causing the guards to trip on the rolling Easter eggs, Sunny hops into a paper bag, where the guards discover that they captured a chocolate bunny, thus being let into Town where Sunny brings Bruce stuffed animals to give him courage every night when he is lonely. Just as Bruce is about to give Sunny permission to come to Town whenever he wants, Lily arrives to stop him. Bruce tells her that he outranks her, but finds it difficult. Afterwards, Lily tells her guards to do anything they can to stop Sunny from coming to Town.
The following year, Sunny and friends plan to have Gadzooks help them bring all the Easter treats to Town. However, Lily's guards cause the bear to trip and break his big toe. Everyone is saddened that injured Gadzooks can't help, but Hallelujah suggests that they build a railroad over Big Rock Mountain from Kidville to Town. After the railroad is built, Sunny and his friends go to the train yard to hire a locomotive to carry all the goods. However, since the big engines in the roundhouse are too important to help, they hire a rusty little switch engine named Chugs and paint him yellow.
Meanwhile, Lily orders her guards to do anything they can to stop the train from getting to Town. They spread melted butter on the rails, causing Chugs to slip, but Hallelujah pours jelly beans on the butter, providing extra traction and allowing them to climb the hill, thus foiling Lily's plan.
Soon after, they all make it to Town where everyone is happily celebrating. But Lily is upset, thinking Bruce will banish her forever. However, he and Sunny give her an Easter flower named after her called a lily. Afterwards, everyone, including S.D. Kluger celebrates with a train ride on Chugs.
