Outside a museum displaying the Star of Bethlehem jewel, Monk, Natalie and Julie are stranded in traffic. Julie suggests they see the jewel exhibit but Monk is busy complaining about the Christmas season as it's the 10th anniversary of Trudy's death. They're interrupted when a Santa starts throwing stuffed animals off of a rooftop. A furious Monk goes after the Santa and from down below, shots ring out. Natalie and Julie run to the roof to find Monk holding a gun and Santa with a bullet in him.
Stottlemeyer tries to reassure Monk and calls Monk's lawyer, Garrett Price, while Disher tries to get a statement from Julie. Santa is wheeled out and the crowd turns against Monk for shooting him. Reporter Brandy Barber shows up to get footage and do a news piece that makes Monk looks bad. Garrett Price tries to reassure Monk as the police interrogate him, without much luck. Monk makes his statement, saying that he tried to get Santa, aka Michael Kenworthy, to try and stop. A gun with a broken handle fell out of Kenworthy's belt, he attacked Santa, and Monk grabbed the gun and was forced to shoot himself in self-defense. Kenworthy claims Monk pulled the gun on him and the only fingerprints on the gun are Monk's. Price tries to bring up a fake story about Kenworthy claiming he had a bomb, but Monk doesn't play along. Stottlemeyer advises Monk to make a claim that he was emotionally upset, but Monk insists he saw Kenworthy with a gun.
Brandy Barber is preparing to play up the story even more when she gets a call from a man saying he saw Monk behind his building and carrying a shovel. Brandy and her cameraman Jerry go to the building, find a fresh hole, and dig up a package holding the missing piece from the broken gun handle.
Monk and Natalie go shopping when some kids and their parents spot Monk. Monk is forced to make a hasty escape, and thinks he should tell his side of the story by appearing with Brandy. Natalie warns against it but Monk goes ahead, promoting himself as a big Christmas fan. Brandy is more interested in talking about Monk's psychiatric discharge. Monk tries to explain, but starts by announcing there's no Santa Claus which doesn't go well. Brandy shows him a photo of the gun and the piece of the missing handle.
Stottlemeyer and Disher go to see Kenworthy with the presents he threw away. Kenworthy is an ex-con and Stottlemeyer demands to know what really happened, but Kenworthy kicks them out.
Later, an old woman is going into her house past a Santa when a man comes at her with a knife. She attacks him with mace, but the Santa (Kenworthy) comes up and kills her.
Stottlemeyer brings Monk in to investigate the murder of the woman, Alice DuBois. Monk figures the attackers were killing her, trying to concentrate while the crowds boo at him. When Natalie gets egged, Monk goes across the street with her but notices candy canes on the ground, tripod marks from a charity kettle, and marks on the body indicating she was hit by a left-handed man and Kenworthy had his right arm in a sling from a shoulder wound.
In his apartment, Kenworthy is meeting with other ex-cons and going over the museum plans, now that they know DuBois won't be going to the hospital. Meanwhile, Monk meets with Dr. Kroeger and admits he refuses to go to the police until he's absolutely sure about Kenworthy. Kroeger reveals that he's been seeing more children that week after Monk's problems, but is more concerned about Monk's issues over Trudy' death. Christmas was Trudy's favorite holiday but all of his before he met her were miserable. He talks about his father only gave him one walkie-talkie for Christmas, but then realizes what Kenworthy was doing.
Monk takes Natalie to the rooftop and explains how it happened: Disher had found one walkie-talkie while collecting the toys. Kenworthy was acting as a diversion, stopping traffic, so the police couldn't get through. Monk figures that Kenworthy was working with others to rob the museum, but since their first attempt failed they're going to try again. They spot a truck down by the museum and call the museum. Brandy Barber is doing a news story at the museum as Kenworthy's men sneak in. Their inside man, who replaced DuBois, deactivates the alarm so they can get in, put on gas masks, and shut off the laser system protecting the Star of Bethlehem. They open the case and take the jewel, while outside Kenworthy is working as Santa. Monk sees him while the other thieves come out and pass the jewel to him. Monk goes after Kenworthy and Brandy and her cameraman follow. Monk chases Kenworthy into a Christmas carol display, and then tackles him. The two men fight until Kenworthy pulls a knife. Monk defends himself with a giant candy cane and knocks him out.
Stottlemeyer has Kenworthy taken away while Brandy goes on the air to tell a favorable story about Monk. All he can do is walk away. Later, at Monk's apartment, he quickly works to clean things up since he had only set it up for the interview, but Natalie and Julie actually encourage him to relax and enjoy the spirit of the holiday.