Penny learns that she will be killed upon Tut's early death and is dragged to the wedding while Peabody and Sherman are trapped in a tomb. Later, Sherman seeks Peabody's help to retrieve Penny, who refused to leave her engagement with King Tutankhamun in Ancient Egypt. Sherman reveals the WABAC to Penny after calling him a liar about his first-hand knowledge, and they joyride in it, despite Peabody's warnings. While Peabody charms Paul and Patty, Sherman is left with Penny. Peabody invites the Petersons over for a dinner party to mend fences between the children. Grunion, a bigoted Children's Services agent who threatens to reclaim Sherman if an upcoming home inspection is deemed unfit for him. Peabody visits Principal Purdy about the matter but is confronted by Ms. Penny bullies and humiliates Sherman, insulting calling him a 'dog' for being raised by one, and she takes his dog whistle and puts him in a headlock which provokes Sherman into biting her on the arm. After narrowly escaping the French Revolution, Sherman starts his first day of school and falls into conflict with classmate Penny Peterson, who he innocently showed up in history class with his first-hand knowledge of George Washington.

He tutors Sherman through a series of adventures throughout history using his greatest invention, a time machine known as the WABAC.

One day, Peabody finds an abandoned infant and legally adopts him under the name of Sherman. As a puppy, he was rejected by every potential owner, leading him to devote his life to science, athletics, and technological discoveries. Peabody is a talking dog and the smartest being in the world.

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