On Christmas Eve, Henry Corwin is late returning from break as the Santa in Dundee's department store. A store security guard tries to excuse Henry's absence, but Dundee knows better. He's actually in a neighborhood bar, spending all of his money on drinks. When the bartender insists on a cash-only policy, Henry has to leave. He sees two children through the window, looking in on Santa, and he's depressed that they will spend Christmas in poverty. When Henry gets up to leave, the bartender notices there's a dollar bill protruding from Henry's pocket. Henry finds another in his pocket but declines to buy more drinks. He steps outside and gives the bills to the children.
Returning to work, Henry loses his balance and knocks over the Christmas decorations. Dundee is infuriated and fires Henry. Henry understands and leaves without a fuss but again laments that children in the surrounding neighborhood won't be having a merry Christmas.
Dundee is beside himself when he finds that the custom-made fur coat he ordered for his wife was accidentally sold to somebody else. He orders the supervisor to bring himself and the clerk responsible to his office the next morning.
At home, Henry empties a bottle of liquor. A group of carolers arrive outside. Henry appreciates them but regrets not being able to give them anything. He takes the garbage out in a plastic bag. On the sidewalk, he's startled by mechanical sounds coming from his bag, which turns out to be a toy motorcycle. He continues to find a stuffed tiger, a boom box and other toys in the bag. Recognizing the magic, he runs toward the carolers, doling out presents to each.
Dundee leaves for the night, still angry at the mix-up. When he drives down the dark streets, he finds them full of revelers with presents, some on new bicycles. Tracing them back to a busy building, he finds Henry passing out exactly the presents each person asks for. Henry even pulls out a hot pitcher of eggnog when the store guard tells him they're running low. Dundee accuses Henry of stealing from his store and calls for police. When the police arrive, Dundee repeats the claim. Henry denies the accusation. When Dundee snatches the trash bag, he finds it full of garbage. The police officer still intends to collect all the presents since Henry can't prove that he owns them. When he heads for the door, the store guard notices a receipt falling from the bag. Henry finds the bag is full of receipts from Dundee's store and the policeman lets him go.
Dundee sits dejectedly on the stoop, clutching a stack of receipts. When Henry comes out, Dundee says he intends to find out how Henry did it. The receipts vanish in a flash. Henry says they both know none of it came from the store. He pulls out the fur coat Dundee ordered for his wife. Dundee is convinced. But doesn't Henry want anything for himself? Henry holds up the empty bag. That night was his present, and he only wishes he could do it every year. Returning inside, Henry tries to remove his fake beard but finds it's real. His ratty costume is suddenly clean. Henry decides to go up the chimney and does so in a burst of sparkles. Dundee, still dazed and slowly walking toward his car, hears the new Santa wishing everyone a Merry Christmas as he fades into the distance...