The Magic Quilt is an episode.
The episode begins at night with Little Bill lying in his bed, repeating over and over that he's brave, and looking at his partially opened closet door. Little Bill whispers into the closet, asks if anyone is in there, covers himself with the blanket, and crawls under it to the other side of the bed, crawls to the closet, and shuts it. When he does, the door pops right back open, making him scared and run out of his room.
Little Bill goes into Alice the Great's room, shakes her, and asks her if she's sleeping. Alice the Great mutters that she is. Little Bill waits for a moment and asks her if she's still sleeping, and she says that she still is. Little Bill asks her a third time, making her say no. Little Bill says that he could sleep better if he slept in the room with her because he would be away from the thing, but Alice the Great says that there's nothing in this world specifically called that. Little Bill still says that it lives in his closet and is really big with green hair, a long tail, and pointy things that stink. Alice the Great tells him that she needs to take a look at this thing, promising Little Bill that she'll protect him because nothing can scare him. He asks her if he is going to get it, but she has to do what she needs to do to check if he's safe.
The two arrive at Little Bill's room, where he tells Alice the Great that the thing lives in his closet. She opens the door, turns the light on, and doesn't see anything in there. Little Bill tells her that the thing only comes out in the dark, but tells him to turn out the light and that they're going to go into the closet. She promises him that she'll hold onto him tight. They go into the dark closet, where it smells like mothballs and old shoes inside, whch are what things like. Alice the Great asks Little Bill if he sees or hears anything, but he only hears her talking. She asks him if he sees the thing. Little Bill thinks it's afraid of Alice the Great, who chuckles and tells Little Bill that something in a closet isn't very smart at all. Alice the Great finally knows what to do.
The two return to Alice's room, where she asks Little Bill why the thing doesn't want to scare April or Bobby. Little Bill says that they are bigger and aren't scared as easily. Alice the Great opens her treasure chest, looks inside, needs some magic, and pulls out a quilt with pictures of an ice cream cone, a beach ball, a guppy, a leaf, and the Sun. She tells him that he is holding a magic quilt that will help the scary thing disappear, asks him if he knows why big kids don't get scared as easily, and says that big kids know a secret about scary things. Little Bill tells her that he likes secrets, and she tells him to get in bed to learn the secret. She then adds that scary things only want kids to think about them, and if he stops thinking about them, they will go away. Little Bill is then told that to stop thinking about the scary things, he should fill his head with good thoughts and there will be no more room for bad thought. He asks Alice the Great what he's supposed to do if he runs out of good thought. Alice the Great says that the magic quilt is what he should use, and the pictures on it will help him think of good thoughts.
Back in Little Bill's room, Alice the Great points to the ice cream, noting that it's his favorite. Little Bill says that the strawberry ice cream she makes is his favorite and the ice cream on the quilt is strawberry. He remembers eating it with her, and then she points to the picture of the beach ball. Little Bill remembers the time he played at the beach with Andrew, Kiku, and Fuchsia. He then sees the guppy picture, and notes that he is one. He imagines that he's swimming in the ocean with the rest of the guppies, starts to get tired, and wants to go to sleep, and will be fine since he has the magic quilt. Alice the Great kisses him good night and turns out the lights.
The next morning, Little Bill joins the rest of the family in the kitchen, and tells them about Alice the Great giving him a magic quilt. Bobby asks if it is the one that helps him forget about scary things. Little Bill agrees to that, and Bobby notes that he used to use that quilt when he was younger. April reminds him that she used it before he did, but Brenda has them both beat and tells them that Alice the Great helped her go to sleep with that quilt. Big Bill pretends to cry and says that nobody told him about that quilt. Little Bill then tells him that he can use it tonight, ending the episode.