By using advice he received from Milton Berle in a daydream, Schecky convinces the two terrorists trying to kill Miss Australia for General Noriega to try their hand at stand-up comedy (a task made easy by the fact that they are aspiring stand-up comics themselves), and they become a hit with the passengers and forget about killing Miss Australia. She quickly falls for and becomes engaged to Schecky’s friend Bob, and then Dickie Diamond who had gotten free of the bathroom he earlier locked himself into suddenly appears and insults the terrorists, and then he insults the audience when they express disbelief at him still being alive, since they had presumed him dead when they couldn’t find him. The terrorists knock Dickie senseless and throw him overboard.
Schecky succeeds at being a funny comedian and ends up kissing King Neptune’s beautiful daughter Slimy, who has become a big fan of his, and Dickie is last shown floating in the sea with a life preserver and giving the finger to everything and everyone.
As Schecky (Adam Sandler) is failing at his second attempt at stand-up comedy, he wonders what Milton Berle would do in his situation. He then has a daydream where he meets Milton Berle (himself), and Milton gives him some advice on how to do a great show. Most important of all, he tells Schecky: “There’s nothing more important in the world than the power of laughter”, which echoes advice King Neptune (Billy Zane) had earlier given him. Schecky then brings himself back to the real world, and with Milton’s advice in mind, he starts winning over the audience.
However, the two terrorists (Warren Selko & Ricky Paull Goldin) working for General Noriega (Burt Young) then get on board the ship and disrupt the show, and Bob (Tom Hodges) gets Schecky and they run away and hide in a lifeboat. The terrorists get on the microphone and announce that all they want is Miss Australia, Ellen (Liza Collins Zane), and that they’re going to kill her for insulting their boss. Schecky and Bob discover that Ellen is also hiding in the lifeboat, and when the terrorists tell her that they are going to cut her fingernails off and swallow them, she panics and runs. Schecky and Bob chase after her, and the terrorists see them all running away and pursue them.
After a long chase around the top deck (during which a mutual attraction develops between Ellen and Bob), the terrorists grab hold of one of the other pageant contestants and yell out to Ellen to either come out now or they will start killing hostages. Ellen, who is hiding nearby with Schecky and Bob, comes out to face them and is seized. Bob tries to save her, but he gets quickly knocked out. One of the terrorists then takes off with Ellen.
Schecky then remembers Milton Berle’s advice, so he faces the other terrorist and manages to get him up on the stage with him and has him start telling jokes, which he doesn’t mind doing because he and the other terrorist are aspiring stand-up comedians themselves. The first terrorist then appears with Ellen, and as the second one tells him about the fun he’s having, Bob shows up and gets Ellen away from them. Schecky tells the terrorists that he’ll let them live with him in America and teach them stand-up comedy, and they decide to forget about killing Ellen. Meanwhile, Bob professes his love for Ellen and proposes to her, and she accepts and kisses him (which is very weird, given that they had just met).
Dickie Diamond (Scott LaRose) finally gets out of the bathroom he accidentally locked himself in earlier in the film, and he soon sees the terrorists doing their stand-up comedy. He pushes them away from the microphone and insults them, and when the audience expresses disbelief that he is still alive (he was presumed dead when no one could find him), he insults the audience, too. The terrorists knock Dickie senseless and throw him overboard. Having been watching the terrorists the whole time on his television set through unknown means, Noriega shoots the TV in defeat.
A week later, Schecky recounts the events of the film, and he remarks that he is now both a funny comedian and a hero. He then gets another visit from King Neptune, but this time, he has brought along his beautiful daughter Slimy (Chris Bogard), who has already become a big fan of his. With Neptune’s permission, Schecky takes her onto the bow of the ship and kisses her. The movie closes with Dickie floating in the sea with a life preserver and angrily giving everything and everyone the finger.
Thanks Tornado Dragon!