Danny Mitchell and friends, Squeaky Foley, Gerald Hebble, Nip and Tuck Worden hang out in their clubhouse, listening to the radio serial "Fang, the Detective Dog" while they collect enough Vitabark box tops to send off for a book How to Train Your Dog to Be a Detective so they can train Danny's German Shepherd, Rusty. The clubhouse is on private property belonging to retired lawyer Franklyn B. Gibson, who instead of running the boys off, uses it as an opportunity to teach a lesson in responsibility.
When a mysterious young man Jed Barlow and his German Shepherd Barb move to Lawtonville, rumors soon spread that Jed is a former "jailbird" based on a letter addressed to him from a U.S. Army Military Prison. Barlow is surly and uncommunicative, but Danny befriends him when Rusty becomes friends with Barb.
Barlow is sharecropping the old, dilapidated, empty Gruber farm and is arrested when the townspeople accuse him of deliberately injuring Rusty while dynamiting a tree stump. Danny, refusing to believe Barlow would deliberately harm Rusty, convinces Mr. Gibson to defend Barlow. During the trial Barlow testifies that he is a veteran spurned by his girl friend and has become embittered at the world as a result.
Mr. Gibson uses Barlow's testimony to argue that society is too often quick to judge people on outward appearances. Jed Barlow's main accuser Gerald Hebble's older brother Luther is charged with slander and the two German Shepherds, Rusty & Barb, become real good friends, hence the movie's title.
