Having overthrown Black Texta and his evil sidekick Rubber, Penny and her friends can get on with helping Ralph with his schoolwork.

When Ralph gets a B for his creative writing story about “terror dactles”, Ralph's mum rewards him with a new writing implement: Mack, the dashingly handsome mechanical pencil. All the coloured pencils take to the flamboyant Mack immediately, while poor Penny is left on the sidelines and relegated to art duty. Things go from bad to worse.

Not only does the mood inside Ralph's pencil case deteriorate, but there are mysterious goings-on outside in the classroom. Ralph gets detention after graffiti appears on his history book, and someone vandalises Sarah's entry in the school colouring competition. Penny takes it upon herself to investigate.

Together with Sarah's pencil Polly, Penny sneaks into the other children's pencil cases to find out who is responsible. After close calls in the pencil cases of Lucy the Stealer, Sean the Chewer and the strange Floating Healers, Penny and Polly stumble across the lair of the evil culprit, and discover that it will take all their ingenuity to save not only themselves, but all the children in Ralph's class from the evil plot.