As Lois and Clark argue over the importance of Christmas, Mr. Schott, an out-of-work toyman, and his faithful assistant, Ms. Duffy, sit watching some children build a snowman in a park. Mr. Schott calls the children over and introduces them to his new toy, the Space Rat. The ugly toy rat has a gun that squirts out a mind-altering substance that makes the children greedy. Mr. Schott squirts the children to see if his toy works and is pleased when they begin turning on each other. Luckily, Superman is nearby and puts out the fight before a little girl (who was not infected by the substance) is plummeted with snowballs.
On the way to work, Clark tries again to convince Lois that Christmas is a joyful holiday. They are stopped by a man dressed as Santa, who is the head of the orphanage. Clark offers to talk to Superman and ask him if he will encourage toy stores to donate gifts to the orphanage. In the meantime, Lois decides to take control of Christmas and tries to get her family together. When that falls through, Lois distracts herself by taking on the story about the new toy fad, the Space Rats.
Lois, Clark, and Jimmy make their way past the crazed shoppers to get the scoop on Space Rats. Clark ducks away and transforms into Superman so that he can talk to the store owner about donations to the orphanage. Lois finds the rats and is appalled at their appearance until she accidentally squirts herself with the rat's gun. She then begins acting like a greedy child herself. Mr. Schott is ecstatic that his invention works on adults, too, but Ms. Duffy begins to question the morality of their work.
Back at the Planet, Clark asks Lois repeatedly for one of the three rats, yet she refuses to give them up. Instead of letting him look at one, she squirts both Clark and Jimmy in the face, causing them to then act like greedy children as well. The three of them begin goofing off and disrupting the newsroom until Perry separates them and takes away the rats.
Martha and Jonathan show up at the Daily Planet and quickly realize something is wrong when Lois runs up and takes their gifts. Also, shockingly, they find Perry dancing to "The Twist" on his desk. When Martha sees Clark using his powers to get a little revenge on Lois, she pulls him by the ear into the conference room and threatens to spank him "like cheap leather". Clark tries to explain himself but realizes how ridiculous he has been acting. He quickly deduces that the rats were the cause of his behavior, changes into Superman, takes the rats away from the chief, and escorts Lois home.
Once the effect wears off on Lois, she and Clark begin to search for the creator of the rats. By the time they get Mr. Schott's information, it is too late in the night to track him down, so Lois and Clark go buy a Christmas tree for Lois' apartment instead. She chooses a weak looking tree because she feels sorry for it, showing that she isn't going to give up on her hopeless Christmas.
When news reports reveal Mr. Schott's scam, he decides to dump the remaining chemicals into the city's water supply. At this idea, Ms. Duffy leaves Mr. Schott and goes to the orphanage to give away the last good thing Mr. Schott made (teddy bears that say "Merry Christmas! I love you!"). When Clark and Lois show up to capture Mr. Schott he storms in demanding to see Ms. Duffy. They take him to the orphanage to see her when the little girl from the beginning of the episode runs across to meet them. She is almost run over, but Mr. Schott throws himself over her. Superman then pulls them both to safety at the last second. Because of his kindness towards the girl, Superman requests that Mr. Schott and Ms. Duffy be able to help pass out toys to the children before they are taken to jail. Mr. Schott tells Superman where the chemicals are, and Superman quickly flies over to heat them up so that they become a harmless substance in the water.
As Lois puts the final touches on her Christmas dinner, she feels a familiar breeze and turns around. Instead of seeing Superman, though, she just sees that her window was left open. At that moment, there is a knock on the door, and she is surprised to see Clark. He says that his flight to Smallville was snowed in, but Lois soon realizes it is not snowing. He gives her a beautiful star for her weak little tree, and they share a touching embrace as they stare down at the carolers outside.