After a storm throws them around for a while, they find themselves landing on a great plateau across a large ravine facing Paradise Falls. With their body weight providing ballast allowing Carl and Russell to pull the floating house, the two begin to walk around the ravine, hoping to reach the falls while there's still enough helium in the balloons to keep the house afloat. As they walk towards Paradise Falls, Russell finds a colorful tropical flightless bird, which he names Kevin, not realizing that the bird is actually female. They later run into a dog named Dug wearing a translating collar that lets him speak. They discover Dug's owner is the elderly Charles Muntz himself, who returned to South America in his immense dirigible several decades earlier in a quest to find and bring back a large species of bird to restore his reputation, tarnished by accusations of fraud. Muntz invites Carl and Russell into his dirigible and Carl is initially thrilled to meet his hero. However, when Carl realizes that Muntz is after Kevin and will kill without a moment's thought in order to capture her alive, he takes steps to save the bird and escape with Russell. Thanks to Kevin and Dug they flee the dirigible and escape Muntz's pack of vicious dogs, led by Alpha, but Kevin is injured during the escape.
As Carl and Russell assist the injured Kevin to her chicks, Muntz and his dogs arrive in his airship, led by a tracking device in Dug's collar, and sets a fire under Carl's house, forcing Carl to choose his house over Kevin. Muntz and his dogs quickly capture the bird and fly off. Though Carl successfully gets the house on the ground overlooking Paradise Falls per Ellie's wish, he has lost Russell's favor. Carl, settling down in his house, finds Ellie's childhood scrapbook and discovers her mementos of her life with Carl after they were married, and a final note from her thanking Carl for her adventure of marriage with him and an encouragement for him to go on his own. Invigorated by Ellie's last wish, he goes outside to find Russell, only to find him suspended from balloons to give chase to Muntz. Carl lightens the weight of his house by dumping his furniture and other possessions, allowing him to chase after Muntz in his house with Dug by his side.
Russell enters the airship through a window, but is captured by the dogs. He is tied up and left to fall to the earth, but Carl saves him and keeps him tied up in the house for his own safety. Carl and Dug board the ship, and are able to lure the guard dogs away from Kevin to free her. Carl and Muntz duel face to face and fight (Muntz with a sword, Carl with his cane), while Dug is able to wrest control of the dogs and the dirigible from Alpha. Russell frees himself but clings to a lifeline as he finds the house in a literal dogfight with biplanes piloted by Muntz's dogs. When Carl shouts for help, Russell distracts the pilots and regains control of the house to rescue his friends, who are now on top of the airship. In pursuit, Muntz shoots out some of the balloons, causing the house to land and slide off the airship. Carl manages to trick Muntz inside the house while saving Russell, Dug, and Kevin. Muntz accidentally lets go of the rope and plummets towards the earth below, while Carl's house drifts off into the clouds — a loss Carl gracefully accepts as being for the best.
Carl takes Muntz's dirigible and returns Kevin to her chicks, then flies Russell and Dug back to the city. When Russell's father misses his son's Senior Explorer ceremony, Carl fulfills that role himself to proudly present Russell with his final badge, the grape soda cap badge that Ellie presented to Carl when they first met. Afterward, Carl, reinvigorated in both spirit and body from his adventure, becomes a cheerfully active community volunteer with a strong father-like relationship with Russell and the other Wilderness Explorers. Whilst Carl now resides in Muntz's airship, his old house has landed exactly where Ellie envisioned it — overlooking Paradise Falls.
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