Foster's Home for Imaginary Friends is set in a universe in which childhood imaginary friends take physical form and become real as soon as children imagine them. Once children outgrow them, friends are relocated to the titular orphanage, where they stay until other children adopt them. The home is run by the elderly Madame Foster, its lovable, kind founder; her rabbit imaginary friend Mr. Herriman, the strict rule-abider and business manager; and her granddaughter Frankie, who handles day-to-day operations.

Because his mother believes he is too old for imaginary friends, eight-year-old Mac is pressured by her to abandon his imaginary friend, Bloo. When Mac takes Bloo to Foster's after seeing a television advertisement, they discover that if Bloo were to live there, he would be available to be adopted by another child. Mac then bargains with Frankie, Herriman, and Madame Foster until they agree to guard Bloo from adoption so long as Mac continues to visit the center daily. Mac continues to visit the home every day after school to experience the escapades of the mischievous Bloo and the array of eccentric, colorful characters inhabiting Foster's and the obstacles with which they are challenged.