Lady first encounters the Rat while she is running happily in the backyard. She sees it, growls, and chases after it, causing the rodent to scamper through a hole in the fence, and into a hiding place under a building across the street.
The Rat has a catalytic role in the climax of the film when it comes back to Jim Dear and Darling's house while Lady is tied to her doghouse on a rainy night. Sensing opportunity after seeing Tramp walk sadly away after Lady snapped at him, the rat leaves his hiding place and makes his way into the yard through the fence hole. Lady senses it's presence as rain begins to fall, and barks at it, but Aunt Sarah tells her to shush. Tramp hears her barking and comes back to her, where she tells him that there's a rat in the house. He then follows him to Jim, Jr.'s room, before it can harm the baby. They engage in a fight, until at one point, it climbs to the top of Jim, Jr.'s crib, with the intent to harm and/or kill him. Just when it jumps into the crib, Tramp bites it on the neck and throws it away and continues to attack, but his rage made him accidentally knocking over the crib, awakening Jim Jr. and causing him to cry as Lady (having broke free) arrives to look after him. Finally, Tramp manages to corner the Rat behind the couch and kill it, but not before receiving a minor injury from it when it bit his ankle.
Having been alerted by the commotion and Jim Jr.'s crying, Aunt Sarah arrives and, not seeing the Rat, mistakenly believes that Lady and Tramp had attempted to harm Jim, Jr., promptly locking Lady in the cellar and sending Tramp off to the pound. However, as soon as Jim Dear and Darling return, Lady shows them the dead rat, clearing Tramp's name.