Totoro is the titular character of the Studio Ghibli film. He is a kind creature who befriended two young girls, Mei and Satsuki Kusakabe, moving into a nearby house. He lived in a forest with family and was often seen with the girls sometimes, such as standing right next to one of them in the rain with an umbrella.
Totoro is one of the toys owned by Bonnie Anderson. He first appears when Bonnie is seen playing with her toys. He is shown to sleep with Bonnie and her other toys. Woody gives him a hug when he finds Andy's house. At the end of the film, he is present when Woody introduces Bonnie's toys to Andy's toys.
In the end credits, he is seen juggling the Aliens in front of the PotatoHeads. He later watches a Shakespearean play with his new friends and Bonnie's toys. He is also seen helping Buzz build a spaceship and watching him and Jessie dance. He is also shown to be stronger than the other toys, as while Buzz finds it hard to lift the cardboard spaceship, Totoro seems to have no trouble at all.
When asked about the cameo of Totoro in Toy Story 3, John Lasseter said, "We do little homages in our films, and we thought it was a very appropriate homage to let [Miyazaki and his film company] Studio Ghibli know how much they mean to us." Hayao Miyazaki and John Lasseter have been longtime friends, and Pixar has helped with the localization of several of his films.
John Lasseter is a self-professed fan of Hayao Miyazaki and all of his Studio Ghibli films. When Disney made a deal with Studio Ghibli to release a majority of their films in the U.S., Lasseter introduced all of the films and narrated a majority of the extra contents in the DVD releases.