Upon reaching the university where Sandra Templeton (Alison Lohman) is a student, teenaged Edward finally meets her and explains that he loves her. She is kind to him and had heard of his accomplishments in Ashton, but is already engaged (to Edward's hapless rival, Ashton native Don Price).
Still determined, Edward finds not-so-subtle ways to woo Sandra. One morning, Sandra awakens to find her lawn covered in daffodils provided by Edward. However, Don Price appears and begins to brutally beat Edward, who had promised Sandra he would not fight back. But as Sandra sees Don's cruelty, she breaks the engagement, and eventually does marry Edward.
While recovering in the hospital from his fight injuries, Edward receives a draft notice, forcing him to enlist for the Korean War. While sad to leave his new wife, Edward knows from the glass eye that nothing in the war will kill him. Thus, he volunteers for the most dangerous missions in hopes of being sent home sooner.
While parachuting into a Korean army camp during a performance for the troops, Edward meets struggling Siamese twin singers Ping and Jing. He offers to help them break into American show business if they can help him get home. However, the Army lists him as missing and presumably dead, sending a telegram to a heartbroken Sandra (in the present day, Sandra finds the telegram and shows it to Will, proving that there is some truth to Edward's stories).
Edward eventually rejoins his wife and takes a job as a traveling salesman to buy them a better house. In line at a bank one day, the younger Edward encounters Norther Winslow (Steve Buscemi), a native of Spectre he had met years before. Norther has since become a criminal, and Edward is roped into assisting him in robbing the bank.
However, the bank has literally no cash for them to steal. Norther resolves to go to Wall Street, where the money is. He later sends Edward $10,000, which he uses to buy a house for Sandra and a young Will. Years later, Edward is nearing middle age. He reconciles with Jenny (also played by Helena Bonham Carter), the little girl he met in Spectre, who now lives in a dilapidated old house and gives piano lessons.
Seeing the condition of her home, Edward begins to fix it up himself, with the help of Carl the giant. After he restores the house, Jenny reveals that she still has feelings for him after many years. Edward gently tells her that he loves only Sandra, and departs. Back in Ashton, elderly Edward weakens more and more.
However, he repeatedly tells his family that this is not the death he saw in the eye. Will spends some time alone, still believing that he will never have a chance to know his father's true character. Shortly after, Edward has a stroke and is hospitalized. Will encounters the family doctor, who had delivered him and is now treating Edward.
Will asks to know the real story of his birth, having heard only his father's catfish story in the past. The doctor explains that it was simply a normal birth, and though Edward exaggerated it, hearing his story was entertaining and comforting. Will decides to reconcile with his dying father.
At Edward's bedside, Will steps into his father's shoes and begins an impromptu story: Edward regains strength, and he and Will escape the hospital. Jumping into Edward's old car, they speed to a nearby river, where all their family and friends are waiting.
Instead of a funeral, they are holding a goodbye party, and Edward happily bids them farewell as he transforms into a catfish and swims away. Shortly afterwords, Edward dies. Will is the only one present for Edward's death, and is deeply happy that they connected at last.
At Edward's funeral, Will is astonished to see all of the characters from Edward's stories show up to attend: Amos Calloway (not a werewolf, but still a short and long-haired man), Carl (not a 12-foot giant, but still very tall at around seven feet), Ping and Jing (not conjoined twins, but identical), Jenny, Norther Winslow, Mr. Soggybottom, and many others.
It is clear that Edward had combined his love of storytelling with his own reality, which finally makes sense to Will. When his own son is born, Will passes the stories on to him.