As Christmas approaches, a mother and her son look for an open store and leave a coin for the Salvation Army Santa outside one store as it closes. They go to find another store and the Santa starts to pack up. A man steps out the shadows and complains about how the Santa has it so good, and then shoots him five times.
Later, a young girl, Susie, comes downstairs and finds Santa playing with her father's train set laid out by the Christmas tree. She wonders why he's there early and the man, wearing a bloody Santa suit, blames it on Rudolph and admits that nothing about Christmas makes sense. When Susie asks about the blood, the man, Leigh Emerson, says that it's not his. He then has Susie take him to her parents and he hauls them downstairs and ties them up with Christmas lights. Emerson tells them that he picked their house to go after because of all the decorations outside. When the father says there's nothing wrong with a little Christmas spirit, Emerson hits him with a decorative bell. He then describes what he's going to do them but finally says that he isn't feeling Christmassy and shoots them both dead.
Mary Eunice calls the Briarcliff patients and staff into the common room and tells them that they're under new management and that they're celebrating Christmas. She points out that Jude banned Christmas parties a year ago after some unpleasant circumstances but she's changing things. Mary Eunice collects personal items and locks of hairs from the patients to decorate the Christmas tree. Arden comes in and sees the nun, shakes his head, and leaves without a word.
In Arden's lab, Frank is praying over Grace's corpse and promises to make things right. When Arden comes in, Frank says that they should call the police but the doctor reminds the security chief that he shot an unarmed woman. Frank insists that he's ready to face the consequences and Arden says that he'll do what he can.
When Mary Eunice goes back to the main office, Jude grabs her and holds a straight razor to her throat. She wonders how the demon inside of the nun can withstand the holy symbols at Briarcliff and then realizes that it's using Mary Eunice's purity as a shield. Laughing, the demon tells Jude that she made a mistake returning to Briarcliff and causes the older nun's collection of canes and whips to fly out of the cabinet. Arden comes in and Mary Eunice has him summon security. They usher Jude out of the building and Arden warns Mary Eunice not to underestimate their opponent. He also tells her that Frank is preparing to confess, drawing the authorities down on Briarcliff, and Mary Eunice tells the doctor that she has everything under control.
Emerson is locked up in solitary when Mary Eunice throws in a Christmas present to him. He assumes that Jude has come to see him but Mary Eunice comes in and tells him that Jude is no longer in charge.
Jude organizes the patients for a Christmas party and explains that the local newspaper is going to take photo. A handcuffed Emerson asks Jude to release him in the spirit of the holidays, but Jude reminds him that he killed eighteen people in five families and she has no intention of releasing him. Emerson dismisses the whole thing as a hypocritical press exercise and refuses to participate, but Jude tells him that he'll be front and center, shackles and all. She notices an orderly, Sean, handing out presents and reminds him that she gave orders not to do so. Before Jude can intervene, Mary Eunice brings the photographer in and the older nun berates her for bringing the man in early. As they talk, Emerson grabs Sean as he passes and bites into the orderly's throat.
Emerson tells Mary Eunice that she doesn't want to release him on Christmas, but she says that she knows all about him. She describes how he was sent to jail for shoplifting a loaf of bread on Christmas Eve, and that the jailers sang Christmas carols in the cell block while five prisoners raped Emerson. Mary Eunice takes out the clean Santa suit and Emerson eagerly takes it, saying that once he took the suit from his first victim, he knew who was naughty and who was nice.
Arden goes to the office and finds Mary Eunice perched on the dress, smoking. She asks Arden about his Nazi Christmas parties and he admits that his family Christmases were among the best times of his life. He gives Mary Eunice a present and she figures it's some cheap gift. However, she's pleased to discover that the present is a set of ruby earrings. As she puts them on, Arden explains that he took them from a Jewess at Auschwitz. She swallowed them each day and then shat them out, and swallowed them again so that no one would find them. Eventually the rubies lacerated her stomach so badly that she died. Mary Eunice enjoys the feel of them and Arden explains that he kept them in the hopes that he would find someone worthy. Mary Eunice puts them on and then tells Arden that he's a sap. He admits that he'd hope Mary Eunice couldn't touch them because of their origins and that he'd catch a glimpse of the nun he once knew. Mary Eunice calls him pathetic and reminds him that he's no angel, and informs him that he's either with her or against him... and if he's against her then even God can't help him.
Lana is throwing up and asks the nun attending her if Mary Eunice called the police as she said. The nun tells Lana that she can count on Mary Eunice keeping her word, while Lana hears Kit muttering from a bed across the room.
Sister Jude goes to see Sister Claudia but the older nun warns that Jude has been thoroughly discredited. Despite that, Jude refuses to give up and talks about God has been banned from television and that the Devil has Mary Eunice. Sister Claudia tries to console her, saying that she'll do what she can, she gets a call from the gate and tells Jude that she has a visitor. Arden. He admits that Jude was right about Mary Eunice and that he can't give a scientific explanation for her condition. Jude realizes that he's frightened and tells him to go to hell, but Arden says that he knows evil. Because of that, Mary Eunice's purity meant a great deal to him, and that purity is gone. He begs Jude to help him and she finally agrees for Mary Eunice's sake. Jude tells the doctor to follow her orders to the letter and Arden agrees.
That night, Monsignor Howard visits Briarcliff and admires the work that Mary Eunice has put into the Christmas celebration. He gives her a hand-carved star as Arden looks on, and admits that he's impressed that Mary Eunice has calmed Emerson enough that he can wear a Santa suit in apparent safety. While Emerson whispers filthy things to a female patient sitting on his lap, Howard talks to Arden privately and suggests that they set aside their differences. Arden assures Howard that Mary Eunice is quite a treasure. Meanwhile, Mary Eunice tells Frank to have the orderlies bring a ladder so that they can put the star on the tree.
Kit is sedated and dreaming of bringing a Christmas tree home for the holidays. His pregnant wife Alma greets him and they talk about how the child is a boy and Kit will teach it baseball and basketball. Alma transforms into Grace, who tells Kit that it doesn't matter why she's back. As they dance, Kit is unaware that Lana is trying to wake him up. She realizes that if Kit is there then the police don't know about him or her. When Kit wakes up, he tells Lana that Grace is dead. As she removes the IV, Lana explains that Thredson is the real Bloody Face and framed Kit. Kit notices that Lana is dazed and asks if she's hurt, but Lana insists that they have to find a phone and call the police.
Arden lets Jude in through the kitchen entrance and tells her where Mary Eunice is. She tells Arden to bring Mary Eunice to the office so she has time alone to get through to her and drive the demon out. As she goes, Jude admits that she's surprised that the two of them are working together.
The orderlies prepare the tree and Howard congratulates Mary Eunice one final time. He admits that he has to leave but they watch as Frank puts the star on the tree. Emerson goes berserk and knocks the ladder over, grabs the star, and stabs Frank with it repeatedly. The orderlies restrain Emerson and Frank kicks him a few times. Mary Eunice tells Frank to take Emerson to solitary. Arden comes over and says that he has something important to show Mary Eunice in her office.
Lana finds the outside phone line and starts dialing. However, Thredson comes in behind her and tells her not to make any toll calls.
As Frank leaves Emerson in his cell, he finds Mary Eunice waiting for him. She says that Emerson must have given Frank trouble, but the guard has no idea what she's talking about. Mary Eunice cuts his throat open with a straight razor while a surprised Emerson watches from the cell door window. He laughs in delight while Mary Eunice feigns innocence and says that she hopes a lunatic isn't on the loose.
Jude is waiting for Mary Eunice to come in and spends her time praying. When she hears the door close, she turns and discovers that it's Emerson. Mary Eunice locks the door and steps backward to join... Arden. She assures him that his loyalty isn't in question. Meanwhile, Emerson grabs a letter opener and describes how Jude locked him up and left him to rot. Jude points out that he escaped and all things are possible, and offers to pray with him. Emerson isn't convinced and starts beating her. Outside, Arden listens for a few moments and then tells Mary Eunice that he has more important matters to deal with and leaves.
Thredson pulls out the phone line and wraps it around his fists, and tells Lana that he knew where she was from the newspaper stories. Since she escaped, he's sterilized the entire house and eliminated any evidence against him. Thredson explains that he had planned to let her live since no one would believe her, but now he plans to kill her since she betrayed his intimacy. He stops Lana from running and says that now he realizes that they've been brought together so that he can "kill" Bloody Face and then bring him back stronger than ever. To do so, Thredson plans to kill Lana, skin her, and use her skin to make a new mask. As he drags her out of the room, Kit arrives and knocks Thredson unconscious with a fire extinguisher.
Emerson throws Jude around the room, knocking over the cabinet with her canes. He remembers Jude whipping him on her desk, takes a cane, and slams Jude down into the same position. As Emerson beats her, he talks about how after she beat him, she left his wounds to fester. As he continues, Emerson says that there is no God.
Lana wants Kit to kill Thredson but he warns that they need the psychiatrist alive so that they can clear his name. As they tie Thredson up, Lana wonders why Mary Eunice didn't turn Kit in.
Arden takes Grace into the death chute inside of a mine car. A sudden white light fills the tunnel and Arden clutches at his head in pain. Vague shadowy figures clutch at Grace's body and when the light dies, Arden discovers that Grace is gone.
Emerson throws Jude on the bed and prepares to rape her in honor of the holidays. As he crouches down, Jude stabs him with the letter opener that she grabbed from the desk, planting it in his neck.
After they finish tying up Thredson, Lana and Kit take him to the rarely-used junk room and make a barricade of beds. They dump the psychiatrist in the center so he can't crawl out. As Kit goes back to the infirmary so no one realizes that he's free, Lana promises Thredson that one day she will bury him.