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In the County Fair tent, where the Princesses are (and Minnie, Goofy, Pooh characters, etc used to be). There used to be 3 different character lines- now there are only 2. One for the Princesses, and one for the Fairies. The Fairies always have a loooong wait, but the Princesses' line has gotten much shorter.
TIP: get to Toontown by 9:30 or so- they usually drop the rope at 9:45, and everyone makes a beeline for the Fairies line. If you get there as soon as the rope drops, you won't have too long a wait.