Devil's Bayou is a swampland in Louisiana and the hideout of the evil Madame Medusa and her henchman, Mr. Snoops. They also kidnap the poor orphan, Penny, and force her daily into an underground pirate's cave to search for the rare diamond, the Devil's Eye. Medusa's riverboat is located here and is her main hideout and where she keeps Penny when the latter is not looking for the Devil's Eye.
Devil's Bayou is inhabited with many other animals that are minor characters of the film.
The river boat hideout is three floors high and has an elevator. It is moored to a rock by the river and the stern is partially underwater. Penny's room is the pilot-house where the boat's wheel once stood, as the wheel and the compass had been removed to make Penny's fold-up bed. The only thing standing is the telegram that sends messages to the boiler room. The lounge is where the staircase and pipe organ are, as well as the main lounge. Also on the ship is Medusa's room, and presumably Mr. Snoops has his own bunk aboard too. The boiler room is full of Mr. Snoop's fireworks. The two funnels in front of the river boat are used as chimneys from the cargo hold to light up Fourth of July fireworks to find Penny if she escapes from the ship. Medusa's Swampmobile is moored to the side of the vessel for when she must track down Penny through the swamplands. Finally, the riverboat houses an elevator, presumably inoperable, that is large enough to house the two crocodiles Brutus and Nero.
The vessel is in a state of decay and disrepair, yet is still able to support electricity and Medusa and Snoops have made it a livable space in spite of its poor condition.
Mr. Snoops maintains the vessel and forces Penny to find the Devil's Eye on Medusa's orders while the latter is in New York. Medusa rushes to the scene to speed up the search after Snoops caught her sending messages for help in bottles. Two members of the Rescue Aid Society, Bernard and Miss Bianca track her down to the Bayou and tell Penny that they intend to help her escape. However, Medusa prompts another search for the diamond and so the duo help Penny find the diamond, ordering their friends in the swamp to rush to the ship on Evinrude's signal.
Medusa tries to escape the Bayou with the diamond in hand, holding up Snoops and Penny until she has fled the scene alone. However Bernard, Bianca, and the swamp animals help Penny to escape with the diamond, during which they set off Snoops' fireworks as a diversion. Penny and her friends escape on the Swampmobile while the riverboat sinks into the Bayou, set ablaze by the fireworks. During the chaos, the riverboat explodes, launching the elevator trapping Brutus and Nero into the air. The ship was then completely submerged with only the smokestacks above the waterline as Penny and the others flee the swamp. Snoops manages to escape, leaving Medusa stranded and clutching to the smokestacks of the sunken ship.
- The exact location of Devil's Bayou within a real world context has long been the subject of discussion among Disney animation fans, with Louisiana becoming an often-considered possibility, and the 1983 theatrical reissue trailer mentioning the Florida Everglades. In reality, it is an completely fictional place sitting on an equally fictional island (as Mr. Snoops points out) located somewhere off the Atlantic coast. Miss Bianca and Bernard are seen flying eastbound into the Atlantic Ocean during the song "Tomorrow is Another Day".