Prior to the events of the first film, Skipper, Rico, and Kowalski are chicks in a penguin colony in Antarctica. An egg rolls away from the colony, and the trio rescue it from leopard seals, but are set adrift on an iceberg. The egg hatches, and the trio name their new baby "brother" Private.

After the events of the third film, Skipper, Rico, and Kowalski celebrate Private's birthday by breaking into Fort Knox, to get Cheesy Dibbles from a vending machine, though what Private really wants is to no longer be considered a "mascot" but a member of the team. The machine comes to life and kidnaps the penguins. The kidnapper is revealed to be Dave, an octopus who lived in the Central Park Zoo as a star attraction, until the four baby penguins arrived and stole his popularity with their sheer cuteness. After being passed from zoo to zoo as an unwanted animal, Dave has disguised himself as a human scientist to enact his revenge. Rico swallows Dave's snowglobe collection and a vial of serum, and the penguins fight off Dave's octopus henchmen and escape.

Fleeing through Venice, the penguins are rescued by agents of the North Wind, an inter-species intelligence agency. "Classified", the wolf leader, informs the penguins that Dave has invented a bioweapon called "Medusa Serum". Rico regurgitates the serum to show Classified, and his North Wind companions (polar bear Corporal, harp seal demolitionist Short Fuse, and snowy owl intelligence officer Eva, with whom Kowalski falls in love). Dave hacks into the North Wind computers and reveals he has far more of the serum. Penguins then start disappearing from zoos all over the world; fearing Skipper's amateur team will disrupt the investigation, Classified darts them and sends them via plane back to Madagascar.

Skipper's team escapes the plane, making their way to Shanghai. Using clues from Dave's snowglobes, they deduce the next zoo attacked will be Shanghai Zoo itself. Private, much to his chagrin, is dressed up as bait for Dave while the others lie in wait. The North Wind intervenes, and Private and the rest of the Shanghai penguins are captured; Skipper, Rico, and Kowalski try to steal Classified's jet, but accidentally blow it up. The North Wind trace Private to Dave's lair and sail there in a boat, with the three penguins towed behind on a raft without food or water as punishment.

Dave demonstrates his plan to mutate all penguins into monsters, so humans will hate them and try to kill them all. Skipper, Rico, and Kowalski reluctantly agree to act as a diversion while Classified leads his team into Dave's submarine; however, both the penguins and the North Wind are captured. Dave attempts to zap Private with his Medusa serum ray, but Private escapes, though the others believe he has been disintegrated. Dave uses the serum on the rest of the penguins, while Private frees the North Wind. Having lost their weapons, they decide to go back to base to regroup, but Private refuses to abandon his brothers and stays behind.

Dave releases the mutated penguins on New York City, inciting a panic. As exterminators try to vacuum up the Penguins with street sweepers, Private steals the ray. He manages to find his brothers and explains his plan - if they replace the Medusa Serum capsule with him, he, as a "source of immeasurable cuteness", can be used to turn all the penguins normal. After an extended battle with Dave and the other octopus guards, during which the North Wind return and blow up Dave's submarine, Skipper manages to activate the ray. All penguins are turned back to normal, while Dave is shrunk to a cute baby octopus and trapped in a snowglobe, which a child decides to take home. Private is mutated into a moose/penguin hybrid, but everyone hails him as the hero of the day. Eva and Kowalski kiss, and Classified apologizes for his distrust of the brothers and gifts them four North Wind jet packs.

In a mid-credits scene, the penguins use Mort in the ray to return Private to normal. King Julien is disappointed Mort was not mutated into a monster, until Mort suddenly tries to eat him.