9-year-old Tony and 7-year-old sister Suey are sent to live on their Uncle Eric and Aunt Maureen's farm while their mother recovers from a serious illness.
Enrolled at the local school, they meet tough Māori boy Harvey Kepanui, who bullies them.
Teacher Mr. Newman warns the class to stay away from Rotten Fred, a fearsome local vagrant who squats in an old shack on government-owned land.
Meanwhile, local farmers, including their neighbour Wilkie, are complaining about a recent spate of sheep killings, apparently by a dog.
Harvey takes Tony and Suey to an old barn, where they agree to form a secret club called the "Mad Dog Gang" with the avowed aim of "bringing the murderer Rotten Fred to justice", adopting the carving as their mascot.
He promises to put an end to it, gathering local farmers to shoot Ratsguts and run Fred out of the district.
Later, the kids go to visit Fred, but he has left the district, leaving them a note inviting them to use his abandoned shack as a headquarters for their gang.
The show was popular with children and was sold to several countries, including Spain, where the two films were broadcast in 7 parts as "La banda del perro rabioso".