She is right about to sign a Magical Contract to Rumpelstiltskin, to "lose all their problems" but then one of their servants said that her daughter was freed from the tower.
In Shrek the Third, she is widowed and becomes a more determined character, leading the pack of princesses through a series of tunnels in the castle, and breaking two walls with her head, whilst humming "My Favorite Things" and "A Spoonful of Sugar" (songs originally sung by Julie Andrews in The Sound of Music and Mary Poppins respectively). She rallies the other princesses from being damsels in distress to independent fighters. It is revealed in the movie that Fiona inherited her fighting skills from her mother (Lillian asks "Well, you didn't think you got your fighting skills from your father, did you?"). After the film's finale, Lillian is seen in Shrek's swamp home, happily visiting her grandchildren and playing with Farkle, who vomited on her dress. At first, she looks distressed and a little disgusted, but this changes as she comes to find it adorable.
Lillian is seen briefly in a number of flashbacks, showing her and Harold's decision to visit Rumpelstiltskin to free Fiona from the curse before Shrek saved her. In the alternate universe, it is revealed she and Harold literally disappeared after signing over the kingdom to Rumpelstiltskin. Lillian's last appearance is at the end of the film, seen celebrating the triplets' birthday.
Decorous and loved by all, Queen Lillian is tolerant of her daughter's decision to marry an ogre if it will make her happy, a thought that initially stands in contrast to her husband's. She seems to be briefly shy and sad after King Harold dies in Shrek the Third and doesn't say much, but after a little while, she perks up and begins accepting life without her husband. This is especially true when she learns that she is going to be a grandmother as Fiona is pregnant and is shown to be very excited. She is determined and nothing means more to her than her family; when they are in trouble, she does everything in her power to save them. Though gentle and nurturing for the most part, if threatened she springs into action and demonstrates her considerable fighting talents.
In "Shrek the Third" when Queen Lillian hits the prison wall with her head she starts to hum the song "My favourite Things" from "The Sound of Music"