The impact of the giant sword sent Mario flying through the air straight back to Super Pipe House. He fell right through the warp-pipe chimney with a loud crash, and Toad (who was waiting outside) sped into the house to tell Mario he was looking for the princess. Upon learning that the princess had been captured yet again, Toad asked Mario to bring her back like he always does. Mario obligingly returned to the castle to discover a giant, talking sword had skewered Bowser's lair. The sword explained that "Smithy's Gang" had claimed the castle as their own, and it banished Mario by destroying the drawbridge.
Back at Super Pipe House, Mario was finally able to articulate the disturbing events to Toad, who decided that they ought to alert the chancellor of Mushroom Kingdom right away. They took Mushroom Way to get to town, and Mario fought several familiar enemies like goombas and parakoopas, saving Toad from the monsters several times and finding treasure-chest blocks full of magical mushrooms and flowers. They found the way blocked by the "Hammer Bros.", a pair of football helmet-wearing koopas armed with hammers, but by performing some fancy jumping attacks, Mario dispatched them and picked up one of their discarded wooden mallets.
Arriving in Mushroom Kingdom proper and entering the royal castle, Mario explained all that had happend in a lengthy pantomime to the chancellor and the royal court. Utterly dismayed, the chancellor pleaded with Mario that he must find a way to save the day and return Princess Toadstool once again. After falling a few times due to last-minute pleas from the chancellor, Mario was able to grab some items from the royal treasure room and head back outside, where he witnessed a fluffy, marshmallowy-looking person chasing a mean purple crocodile who had apparently stolen something from him. Mario talked to this person, called Mallow, and agreed to help him retrieve the stolen "frog coin" that he had brought all the way from Tadpole Pond to trade with the local shopkeeper.
A mushroom-person, who was hanging around on the outskirts of town, related to Mario and Mallow that he had seen the crooked crocodile theif pass by. Why didn't he stop the criminal? "Because I left my bazooka at home, SHEESH!" At that point the thief, named Croco, passed by AGAIN after stealing another citizen's wallet, so Mario and Mallow chased him down Bandit's Way. Encountering more familiar enemies and a few tricky treasure blocks, Mario used the hammer he acquired to dispatch enemies while Mallow (apparently a magician) conjured healing rainclouds and lightning storms to help in fights. They eventually tracked the thief Croco down and fought him off, retrieving the stolen frog coin and wallet.
Nearing nightfall, Mario and Mallow returned to town to find a gang of pogo-stick riding Shysters terrorizing Mushroom Kingdom! Mario and Mallow managed to return the mushroom-person's wallet on the way to the castle, which had also been invaded by the Shysters. Finding most of the royal court hiding out in Princess Toadstool's room, Mario and Mallow rested up and then headed to the throne room to rescue the chancellor. A group of bouncing Shysters and a weird monster named Mack, apparently their leader, confronted Mario and Mallow there. After a long battle pitting Mallow's lightning spells and Mario's hammering, jumping, and fireballs against a gang of Shysters and Mack's "Fire Wall" spell, the gangsters were defeated and driven out of Mushroom Kingdom.
Amid some fanfare, Mario collected a mysterious blue star Mack had been hoarding behind the throne and roused the chancellor who was cowering in the corner. The chancellor thanked Mario and Mallow for saving the town again but noted that events seemed to be getting worse and worse, all the more reason to save the princess quickly. Mallow suggested that they go to see his grandfather at Tadpole Pond, who might be able to help in their quest. To get there they would have to travel through Kero Sewers, but before they leave Mario took Mallow to the town shopkeeper, where Mallow was able to trade his frog coin for the "cricket pie" he was sent to fetch.