The Two Princesses, like several episodes in this series, is presented as a Frame Story. It begins with Baby Hugs Bear and Baby Tugs Bear helping Grams Bear plant flowers. When asked which of them would like to retrieve more flowers to plant, the two cubs insist on making it a competition instead of working together. Intending to teach them a lesson, Grams begins to tell them a story.The story takes place in the fictional "Heartland", where two sister princesses (played by Treat Heart Pig and Cheer Bear) live. While Treat Heart is very humor oriented, Cheer Bear is more focused on building and creating things for the Kingdom. Because they are both very good candidates for the role of Queen, the King (played by Brave Heart Lion) is having trouble deciding between the two. The Squire (played by Bright Heart Raccoon), suggests that they retrieve a missing jewel as a final test. Brave Heart explains that they must go to Thunder Mountain, and that they will find it in a windmill guarded by a two-headed dragon.
As they journey, the two clash slightly in their differing idealogies. When they reach a fork in the road, Cheer wishes to hike up the more difficult path while Treat Heart wishes to go the more "fun" looking route. Cheer Bear arrives first, and is immediately noticed by the dragon (played by Shreeky and Beastly) who promptly tries to eat her. Treat Heart arrives shortly afterwards, tricking the dragon by asking which head it is that wants to eat her instead. The two heads bicker over who will get to eat her, giving the two a chance to escape.Luring the dragon outside, they manage to ensnare it on one of the windmill spokes. As it spins, they lose hold of the jewel, and it falls into the hands of the princesses. Once home, the two explain how they worked together, making a great team. King Brave Heart agrees that they both did well together, and the two princesses are both named Queen.
After Grams finishes reading the story, Hugs and Tugs agree that it is better to work together.