Sagwa and Sheegwa fall down a deep hole that they forgot they dug, and find an enormous underground cavern filled with a dwarf race. They tell Sagwa and Sheegwa that they plan to take over the Magistrate's town, but ask Sagwa and Sheegwa not to tell anybody. For some reason Sagwa can understand the language the dwarfs speak, even though Sheegwa can't. Sagwa won't tell Sheegwa what the dwarves said, but she has an inward struggle as she decides whether or not to tell anybody about the dwarves and their plans. She did promise them that she wouldn't tell anyone, but on the other hand, they're planning to enslave everyone she knows.
Eventually Sagwa figures out that Dongwa and Fufu are in league with the dwarves as well, and so she stops talking to them, and starts maybe thinking it would be ok not to tell anyone, since some of her friends are ok with it anyway. But then Sheegwa studies the dwarf language and realizes what they're planning on doing, and she warns the Magistrate by writing a secret message in his breakfast. He orders his subjects to fill the hole the dwarves are in with all kinds of things - rocks, furniture, gold, and whatever else they can find. Finally, Sagwa gets put in time out for a few minutes once her parents realize she was thinking of not telling anyone about all of this, and Fufu and Dongwa pretend they never knew about any of this.
The show ends with the camera slowly zooming in on the hole that the Magistrate's subjects filled up, and then suddenly a dwarf hand sticks up out of the top of the buried hole.