SpongeBob is excited because his brand new hero, Kenny the Cat, is coming to town. Kenny is a cat who can hold his breath underwater for a really long time. Mr. Krabs is excited about Kenny's visit to Bikini Bottom too, so he decides to have Kenny appear at the Krusty Krab and give him the manager's treatment. SpongeBob goes to Sandy's house and tells her the news about Kenny coming to town, but Sandy thinks Kenny is a fraud because no land mammal can hold their breath for an extended period of time.
That night, SpongeBob and Patrick camp outside to see Kenny. They look at the stars shortly afterwards SpongeBob paints his and Patrick's face to look like Kenny. He shows Patrick other objects he brought along to idol his idol. Patrick then gets creeped out by the amount of idol worship and leaves.
The next day, Kenny the Cat finally arrives and starts giving out autographs. SpongeBob asks Kenny to autograph his custom Kenny spatula. He then invites him to the Krusty Krab. Kenny arrives at the Krusty Krab and Mr. Krabs gives him free ketchup packets and an all-you-can-eat buffet in his honor. He begins to struggle, as he needs to take a breath. He draws a toilet and runs to the restroom. In the bathroom, Kenny takes an oxygen tank out from behind his back and uses it to breathe. SpongeBob sees this and realizes that Kenny is a fraud after all. Kenny begs SpongeBob not to reveal his secret because he just wants to be special and SpongeBob agrees.
When everyone is admiring Kenny and basking in his glorious fame, Sandy shows up and asks him some questions to expose Kenny. After she started talking about what happens to mammals who go without air for a long time, Kenny gives in from pressure and takes out his oxygen tank and reveals himself. This causes everyone to turn against Kenny and Mr. Krabs takes back the ketchup packs.
However, SpongeBob decides to help Kenny by giving him a suit and helmet. He decides that Kenny should become a famous cat who lives underwater (like Sandy does). Kenny thanks SpongeBob for helping him, but sadly Sandy arrives and launches Kenny back home to the surface. Sandy mentions that you can never trust a cat, but gets confused, saying, "Or is it a dog?" and the episode ends.
There are several subtle hints to Kenny as a fraud:
Kenny is often seen with his cheeks puffed up, later revealed that he is holding his breath underwater all the time.
Kenny never speaks or moves his mouth when his cheeks are puffed up.
The name "Kenny" may be a reference to Tom Kenny, SpongeBob's voice actor.
As stated above, Kenny's appearance is similar to that of Tom from Tom and Jerry. In addition, his appearance is similar to that of the cartoon version of Salem Saberhagen from Sabrina The Teenage Witch.
Ironically, combining Tom and Kenny gives one Tom Kenny.
The way Sandy thought Kenny was a fraud (and was) could be a reference to celebrities in real life, and how people think about them.
Right before SpongeBob face-painted Patrick, Patrick was still wearing his green Kenny the Cat "A-Ok" hat. When SpongeBob was face painting Patrick, his hat suddenly disappeared even though he wasn't shown taking it off.
Kenny's a cat, he should've been a lot larger than the fish and Sandy.
Despite the fact Kenny needed an oxygen tank, he was able to talk after using it, which doesn't make any sense.
Patrick's sleeping bag disappears right after he leaves, even though it was shown earlier.
When everyone found out that Kenny was a fraud, the fish walked away and a male voice saying "Liar!" can be heard, but a female fish is the one opening her mouth for the word instead of a male one.
When Kenny was breathing through his oxygen mask in front of his fans, the Chum Bucket was not seen.
Somewhere at the end Kenny's nails turned white when he said "Have Mercy!" when his nails are supposed to be gray.