Someone walks down into a basement, and pulls out a bottle of port. A gloved hand mixes some poison and carefully applies it to the bottle. The person wraps it up, ties it in a bow, adds a candy cane, and then proceeds to write a name on a typewriter: Captain Stottlemeyer. The person puts the envelope on the bottle, puts the bottle away, and goes upstairs. Everything is ready.
Meanwhile, at the San Francisco Police Department Office, everyone is preparing for the annual Christmas party. Detective Terry Chasen hangs a "Merry Christmas" banner but has to straighten it when Captain Stottlemeyer tells him that Monk is coming. Stottlemeyer and Chasen muse about the previous year's party, and Alice Westergren, one of the department's cops, tells the Captain that an auto company dropped off a bottle of port for him, as a way of saying thanks for a recent purchase. He takes the bottle into his office, where Lieutenant Disher is waiting, playing the Captain's wife's guitar. While Disher recalls his high school band, the Randy Disher Project, the Captain says he will bring the bottle home to Karen, and has to prevent Randy from taking it himself!
Meanwhile, at Natalie's house, Monk and Natalie get ready for the party. Monk helps Julie trim the tree and listens to her wistful thoughts about snow. Then, he gets his "Secret Santa" present for Stottlemeyer, and leaves with Natalie. At the party, everyone dances, talks, and listens to Stottlemeyer and Disher's rendition of "O Holy Night"! But as Secret Santa time approaches, the Captain panics. He can't find the present he got for Detective Chasen. Alice suggests that he give him the bottle of port instead, which he promptly does. Meanwhile, Monk receives a broom and dustpan from Alice, and Stottlemeyer receives an air freshener from Monk!
As the party dwindles down, Chasen starts to drink the port he got as a present. But suddenly he collapses on the floor and dies.
It turns out that the bottle was laced with strychnnine. Port was such a heavy drink that Chasen couldn't have felt it. Stottlemeyer feels terrible, realizing that the bottle was meant for him. The auto company is a dead end, so Disher forms a list of people who had a grudge against the Captain. Stottlemeyer, though, is certain that it's Frank Prager, a man who tried to kill him after he shot his brother. Monk and Stottlemeyer go to investigate Prager, while Disher and Detective Robbins investigate the other suspects.
Stottlemeyer brings Monk to a bar, and tells him how he was almost killed four months before. He walked out of the bar at 2:00 AM, when Frank Prager appeared from behind a car, fired five shots, and then ran away. Monk wonders why he didn't keep firing, and then notices that the bullets on the wall have a pattern: 2-1-2. The Captain asks Monk to go to the Pragers' house and try to interview Frank's wife.
That night, Natalie and Monk wait in Natalie's car outside the Pragers' home in a stakeout. They begin to talk about Trudy, who died 9 years before. It has never snowed since. Natalie mentions that Julie has always wanted a white Christmas. However, Natalie gets impatient, and Monk and her go up to the Pragers' house and pretend to be carolers. Natalie pretends she needs to use the bathroom, and while Mrs. Prager shows her where it is, Monk talks to Dory, Frank's daughter. He asks her where he is, but just when she is about to tell him, Mrs. Prager comes back. Realizing that he and Natalie are working for the police, she sends them away.
The next day, Monk and Natalie go to the mall trying to find Dory again. Natalie, who had worked there as a teenager, discovers that her old boss still works there. She says that he owes her one, and goes to ask him something. Natalie's plan is to have Monk dress up as Santa so he can interview Dory. Natalie dresses up as an elf, and while she explains a few new rules about Santa to the kids ("You need to use these magic wipes"), Monk emerges in his suit. He encounters several children, including a sick girl, a boy who wants a rock polishing kit (who he deems as "Santa's favorite"), and a young girl named Trudy. Finally, Dory sits on his lap. He explains that in order for him to bring her father back, he has to know where he is. She tells him he's at a church, and then, suddenly, Monk spots Prager himself waving to his daughter. Monk and Natalie run frantically, trying to catch him, but he escapes.
Disher and Stottlemeyer find the church where Prager has been hiding, but before the Captain goes in, a nun wants to have a word with him. Sister Heather wants Stottlemeyer to be gentle with him , explaining that he is at heart a good person, and he helped the poor while he was in the church. Stottlemeyer agrees not to hurt him, and they bring him to the interrogation room.
Prager explains that when he wasn't trying to kill Stottlemeyer, but rather to send him a message. The pattern of the bullets spelled out an "M", M for Michael, his brother, that is. After angrily explaining to him that he doesn't need an M on a wall to remember his brother, Stottlemeyer, Disher, Natalie, and Monk decide that Prager isn't the killer.
Monk spends Christmas morning at Natalie's house. He gets a goldfish from Natalie and Julie, and he gives Julie a first aid kit. When she spills some fish food, Monk goes to get the broom he got from Alice. On his way to the kitchen, he looks at the card he got with it, and finds a clue that makes him solve the case.
Monk, Natalie, Disher, and Stottlemeyer show up at Alice's house. Monk explains that Terry was the intendend victim all along. Alice was in love with him, and couldn't stand him remarrying his wife. She stole the Captain's present to him, and then suggested giving him the poisoned bottle instead. Monk figured it out when he noticed that the card he received was too big for the envelope, and had to be folded over to fit. The card for the poisoned bottle was too small, and then Monk realized that Alice had mixed them up.
After the case is solved, the Captain forgives Prager and decides to let him go back to his family for a few days. Then, on Christmas Night, Monk is staring at Trudy's last gift she gave him, which he has never opened. All of a sudden, Julie comes rushing down and tells everyone to go outside. They go out, and it is snowing. Julie has gotten the White Christmas she always wanted. While Natalie runs inside and Julie goes to get her camera, Monk steps out into the snow, opens up his arms, twirls around slowly, and gazes upward, while "White Christmas" plays.