Created by a guardian angel, Laughing Jack was initially a colorful Jack-in-the-box clown whose personality reflected the personality of his owners. He was later sent as a Christmas present to a lonely boy named Isaac Grossman in the 1800s.
Isaac then abandoned Laughing Jack after being sent to boarding school. Laughing Jack grew monochrome and emotionless as a result of his isolation. Meanwhile, Isaac grew up to become a cold-hearted serial killer who kidnapped, tortured, and murdered several innocent neighborhood residents. Although horrified at first, Laughing Jack's personality soon emulated Isaac's evil personality. One day, Laughing Jack was accidentally released and he appeared to be a taller, darker, and demonic version of himself. Resentful of his traitorous owner, he tortured and killed Isaac with the same weapons he used on his victims.
As time passed, Laughing Jack visited several other children, most of them lonely or neglected, and pretended to be their imaginary friend. However, he would eventually torture and kill them all, with their souls trapped in the nightmarish realm of an abandoned fairground. To make matters worse, the song "Pop Goes the Weasel" plays in the background forever, tormenting them.