It is Christmas time, and the Simpsons go caroling around Springfield. They sing to Snake (who is busy robbing the family he has gagged and tied up), Krusty and his dad, and Mr. Burns and Smithers. The Simpsons continue until they reach the Blue-Haired Lawyer's house. He tells the family that they cannot sing Christmas carols, unless they pay a royalty. In response, Homer makes the lyrics for his own carol. Later, Ned Flanders comes in and tries to help Homer, until Homer kicks him out, but even then Flanders annoys him. Homer finds new inspiration in an anti-Flanders song, "Everybody Hates Ned Flanders". He plays the song at Moe's, and when David Byrne comes in, he likes the song so much, that he wants to produce and record the song. "Everybody Hates Ned Flanders" becomes so popular (even with Ned and his sons themselves) that even William Shatner does a cover of it. This leads to mass publicity, which annoys the Simpsons, who want to avoid it. They find a brochure for a dude ranch, the Lazy I Ranch, and go there.
The family arrives at the Lazy I Ranch, owned by the Rich Texan, who tells Lisa that the ranch was built on cruelty to animals and oppression of indigenous people, which annoys her. It makes her want to leave, until she meets a cowhand, named Luke Stetson, who stops her stepping on a rattlesnake egg, and shares her views on the ranch. The family meet a man called Cookie who shows them around and sets out some dinner. Homer and Bart also have their own adventure when they meet a tribe of Native Americans who want a dam removed so they can reclaim their land. Homer agrees to do so if they build a Casino on their land, which is accepted. They are confronted by beavers when trying to kick it apart and they start making Homer part of the dam, but Bart manages to tie a rope to Homer and drags him away on his horse, but the rope breaks and the beavers continue to bite Homer. They eventually destroy the dam after luring the beavers away with old wood and removing the master log, and give the land back to the Native Americans who include them in their tribe by giving them cups to drink from which contains bear urine (and then say it actually contains Fresca, at which point Homer and Bart spit it out). Meanwhile, Lisa thinks that Luke is off-limits, because she overhears him on the phone promising a last dance to a girl named Clara and telling her that he loves her; causing Lisa to think Clara is Luke's girlfriend and she goes to her bed crying and jealous. When Lisa encounters her, she deviously tricks her into going the wrong way. At the dance, Lisa finds out that Clara is Luke's sister and runs to the beaver dam with Bart. They find Clara standing on a rock in the middle of a torrential river; she cries out to Lisa and Bart for help, explaining that she cannot swim. Bart taunts some beavers and runs up a tree; the beavers chew through the tree, causing it to fall and making a bridge that drowning Clara can go across. However, when Lisa comes clean about what happened to Clara, Luke is offended and they separate. As the Simpsons return to Springfield, they hear a self-deprecating cover version of the Andrea True Connection song "More, More, More", (entitled "Moe, Moe, Moe"), on the radio, sung by Moe and produced by David Byrne (who Moe kidnaps earlier in the episode), and turn around to spend another week at the ranch.
A video was posted on YouTube by the Y101 Morning Showgram radio show in Jackson, Mississippi demonstrating the similarities between Homer's Christmas carol song, and a verse from "OMG" by Usher (written by will.i.am). The video questions whether the verse in Usher's song is a case of plagiarism, or an uncanny resemblance.
On November 2, 2004, the episode was released in the United States on a DVD collection titled The Simpsons Christmas 2, along with the season twelve episodes "Homer vs. Dignity" and "Skinner's Sense of Snow" and the season fifteen episode "'Tis the Fifteenth Season". While reviewing the DVD, Brian James of PopMatters wrote that "Dude, Where's My Ranch?" displays "the series’ nefarious habit of using the first third of the episode as a clearinghouse for disconnected jokes before actually beginning the plot, a blight made that much more glaring here since the only connection to Christmas comes early with the rest not even taking place in winter."