Mermaid Man and Barnacle Boy are going on vacation, and they ask SpongeBob and Patrick to look after the Mermalair. They ask them if they can play with the various gadgets, but are told not to touch anything.
While wandering around the Mermalair, SpongeBob and Patrick find Man Ray, one of Mermaid Man's most feared nemeses, stuck in a prison of frozen tartar sauce. SpongeBob says that he has some questions to tell him, so Patrick stupidly turns the lever to 'Unfreeze.' SpongeBob stops him by setting it to 'Freeze' again, but Man Ray's head is free, so he then forces the two to free him. SpongeBob says they can't, because he is evil. He will only be freed if he is good, so he says that he is good. They unleash him, and he attempts to kill them, but is stopped by a "tickle-belt" (as seen in Episode 17!), a device that tickles whoever is wearing it when a button is pressed.
He pretends to be sad, and says that it's good if anyone can teach him to be a good person. SpongeBob and Patrick offer to teach him how to be a good person, and he accepts, in order to get the belt off. The first lesson is what do you do if you see someone dropped their wallet. Patrick drops his wallet and Man Ray tries to give it to him, but he says it isn't his wallet. So Man Ray tells him that he found his license in the wallet, so it is his. Patrick says that's right but when Man Ray says "So take it," he says it isn't his wallet (again). Man Ray gets angry, but stopped by the tickle-belt.
The second lesson, is what do you do if you see someone is carrying a heavy object. Patrick carries a heavy box. Man Ray tries to help Patrick, but Patrick always drop the box to Man Ray's feet. After three times being hit, Man Ray angrily asks Patrick what's in the box. Patrick says that his wallets are in it, and Man Ray beats up Patrick, so SpongeBob tickles him, but Man Ray is still beating up Patrick while laughing saying it's worth it (as his difficulty with the lessons are largely due to Patrick's stupidity).
After moving on to SpongeBob's "goodness lessons number 3," an angry Patrick, who has been severely injured by Man Ray's fit of anger, takes control of the lesson. He says he is thinking a number between 1 and 100, and Man Ray must guess it. He guesses 62, but Patrick says it's wrong and tickles Man Ray, but while Patrick and SpongeBob are arguing, they accidentally break the button. The belt continues to tickle Man Ray and he says please, so SpongeBob releases him. They think Man Ray is now rehabilitated, but he zaps the two into dust and runs away.
SpongeBob and Patrick become Mermaid Man and Barnacle Boy and use the invisible boatmobile to meet up with Man Ray, They try to use the Orb of Confusion on him, but get confused themselves. Man Ray then attempts to rob a bank, but he still has the tickles from the belt, and instead opens a checking account. Man Ray then turns off the Orb of Confusion and tells SpongeBob that his lessons to become good has transformed him. So he gives his head to him while saying that he won't be needing it. SpongeBob tells Patrick that they saved the day just like the original Mermaid Man and Barnacle Boy would, but Patrick still has the confusion effect even though the Orb is off.
In "Back to the Past," it shows Man Ray getting frozen in tartar sauce as a reference to this. It also explains the possible reason why Man Ray is still evil in other episodes as they changed the past, and Man Ray went to jail instead of getting frozen, hence this episode was erased from history.
The "Villain Containment Chamber," where villains are kept in frozen prisons, is featured in the Mermalair level of Battle for Bikini Bottom. The villain "Prawn," is accidentally released from his containment, and must be defeated by SpongeBob.