In the Forman basement, the gang sits around watching Christmas specials on tv while Donna trims the tree. Kelso asks Eric what he's doing on Christmas Eve and Eric says that he'll probably be going to his parents' annual party, which he hates. Jackie says that she and her friends will be giving out baskets to the "unfortunate" people....bums. Kitty comes downstairs and asks Eric to help her get the decorations. The gang is talking about what their favourite gift is; Hyde says that his is cash, because then you can buy whatever you want. He asks Donna, hypothetically, if someone gave her $6.00, what would she buy. She tells him that it's not the cost but the thought that counts. Kitty comes screaming out of the back room, followed closely by Eric, who explains that while looking for the decorations, they'd found the "Christmas rat."
[Scene change: different colored flower-power flowers fill the screen to Christmas music.]
In the Forman kitchen, the family sits around the table talking. Eric asks Red if he can have his own party in the basement instead of going to his parents' party this year. Kitty laughs, but Red says yes, which shocks both Kitty and Laurie. Eric asks Red for some money for the party; Red gives him $40.00 and tells him that he's to buy a Christmas tree with the money; he can keep whatever is left over for his party. Kitty wants to make punch and cookies for Eric's party but he tells her no.
At Bargain Bob's, Red is just finishing up with a customer when Bob comes over and tells Red that he's doing really well; he's Bob's second-in-command. Then Bob asks Red to close the store for him on Christmas Eve; Red wonders why they'd even be open. Bob explains that he wants to stay open for all those last-minute shoppers who might want to buy a fridge. Red agrees to work on Christmas Eve but refuses to wear the Santa suit.
On the side of the road, Hyde and Eric are standing guard; Hyde tells Eric to relax, that they have a good plan -- they're going to cut down a tree and keep the $40.00 for beer. Eric sees a car coming, so both he and Hyde dive down out of sight, and Kelso pops up to see what's happening.
In the Forman's driveway, the Eric, Kelso and Hyde are taking the tree off the roof of the Vista Cruiser, happy that they now have money for beer. Kelso suggests that if they don't buy any presents, then they'll have even more money for beer. Kitty and Midge come out of the house; Kitty is exclaiming over the tree and how beautiful and fresh it is; just then, a bird flies out of it and Kitty runs back into the house. Hyde takes the opportunity to ask Midge what kinds of things Donna likes, telling her that he needs to buy a gift for some other girl the same age as Donna. She suggests perfume, but it's too expensive for Hyde. Laurie comes out of the house, and as soon as she sees the tree, she knows that Eric stole it rather than buying it.
In the Forman's livingroom, Laurie, Kitty and Grandma Forman are decorating the tree. Grandma Forman is complaining about how ugly the decorations are. Eric comes downstairs; Laurie wants him to help decorate the tree, but he tells her that he's too busy planning his party.
In the Forman kitchen, Jackie explains to Kelso that she wants him to drive her and her friends around on Christmas Eve to deliver the baskets to the bums. Her three friends stand by and listen. Hyde and Fez come up from the basement; Fez invites the three friends to join them at the party. After deciding that they are supposed to be helping the less fortunate, they agree to come to the party. Hyde asks for Jackie's help in choosing a gift for "a girl" whom Jackie immediately knows is Donna. Hyde denies that it's Donna, and when Jackie finds out that he only has $6.00 to spend, she tells him that it's a good thing that it's not Donna because he wouldn't get a girl like her for that little. Kelso, Jackie and her friends leave. Fez asks Hyde what he's doing trying to get Donna when he knows that Eric likes her. Hyde justifies what he's doing by saying that what Donna and Eric have isn't official.
[Scene change: a picture of Bob in a Santa suit, saying, "Remember, every day is Christmas at Bargain Bob's!"]
In the Forman kitchen, Laurie and Grandma Forman bring in some groceries. Kitty has a bowl of punch and some cookies ready to take down to Eric's party; she stops Laurie from having any of the punch. As Kitty and Grandma Forman leave the kitchen to get more party supplies, Laurie comes back in carrying a bottle of rum, which she pours into the punch bowl.
In the Forman basement, Eric and Donna are adding more decorations to the tree. Eric puts some mistletoe just over Donna's head. They kiss; Kelso and Hyde come in with the beer just as Kitty comes downstairs. Eric tells them to put the beer away; Kitty has the punch and cookies that she promised. Laurie tells Eric that since Kitty made the punch, the least he could do is drink a lot of it. Fez comes in carrying a bag of presents and asks Laurie to put them under the tree; she refuses, but offers him some punch. Kelso is shocked - he thought that they weren't going to give gifts this year. They all tell him that that was just his idea and the rest of them never agreed to it. Kelso now has to go out and get a gift for Jackie. Laurie offers him some punch before he leaves.
At Bargain Bob's, Red sits alone and watches a Christmas special on tv. Kelso runs in, telling Red that he needs a Christmas gift, and Bargain Bob's is the only place that's open in the whole town.
In the Forman basement, the party is in full swing. Fez offers beer to Jackie's three friends, but they say that they'll just have punch.
At Bargain Bob's, Red and Kelso are playing Pong on one of the store tvs. Kelso says that he has to go, but Red convinces him to stay for one more game.
In the Forman basement, Fez is pouring more punch for Jackie's three friends. They seem to have had quite a bit of punch and have loosened up. They're sitting very close to Fez and telling him that he looks like Freddie Prinze and Ricardo Montalban. Jackie comes over, saying that Fez was her friend first -- she's obviously had quite a bit of punch too. Kelso comes in and gives Jackie her Christmas present; hot rollers, which makes her very happy.
In the Forman livingroom, Kitty, Laurie, Midge and Grandma Forman are gathered around the organ, singing Christmas songs. Red comes in and tells Bob that he sold a set of hot rollers, and a Pong game. There's a knock at the door; Midge answers and it's two State Troopers asking who owns the Vista Cruiser. They come in and explain that they have to confiscate the Christmas tree as it's stolen property. Kitty throws herself in front of the tree telling them that they can't take it.
In the Forman basement, Hyde gets a present from under the tree and gives it to Donna. She unwraps it, and loves the gift -- a picture of her and Hyde that he framed. Donna thinks that it's a sweet present, Eric isn't so happy about it. He gives Donna his present -- a bottle of her favourite perfume. She thanks him then goes back to looking at the picture. Eric starts to say that he wishes he'd gotten her something like that; Hyde tells him that it's nothing. Donna disagrees, saying it's the sweetest thing that anyone's ever given her and she gives him a kiss on the cheek. Red comes downstairs and tells Eric about the State Troopers confiscating the tree, and asks Eric to explain. Eric tells the truth; Red says that he's grounded, the party is over and he wants what's left of the money. Unfortunately, Kelso was in charge of the money, and he used it for Jackie's gift. Jackie comes running over, impressed that Kelso got in trouble for her. She starts crying and tells Kelso that she loves him, then adds, "And Hyde loves Donna." Red immediately sees that she and her friends have been drinking. Eric says that they've only had Kitty's punch; Red tastes it and tells them that it's "lousy with hooch." Red says that he's going to drive Jackie and her friends home; he orders Eric and Hyde to clean up; tells Donna to join her parents upstairs and tells Kelso to go home. When only Hyde, Donna and Eric are left in the basement, she gives them both a Christmas present, then runs upstairs. Hyde and Eric are both reluctant to open the gifts, but they do. Eric got an i.d. bracelet; Hyde got tube socks, which makes Eric happy.
[End credits: In the Forman kitchen, Bob thanks Red for working on Christmas Eve, then asks for a hug. Red tries to say no, but Bob hugs him anyway, then says, "Look, mistletoe!" Red jumps back, but Bob was just joking.]