After forming a friendship by the end of the first Daddy's Home film, Brad Whittaker (Will Ferrell) and Dusty Mayron (Mark Wahlberg) establish a co-dad system for their children, Megan (Scarlett Estevez) and Dylan (Owen Vaccaro), who alternate between their two homes. Dusty has since married Karen (Alessandra Ambrosio), a writer, and is now the stepfather to Adrianna (Didi Costine), Karen's daughter.
Things take a turn during a school play for Megan, where she expresses her discontent with having to shuffle between houses frequently. Following this, Brad and Dusty plan to celebrate a "together Christmas." The arrival of Kurt (Mel Gibson), Dusty's ex-astronaut father with a flamboyant personality, complicates matters as he is bewildered by their unconventional family dynamic. Meanwhile, Brad’s own father, Don (John Lithgow), arrives greeting Brad with heartfelt affection, further adding to Kurt's discomfort.
At their home, while Megan and Dylan are pleased to see Don, who actively participates in their lives, Kurt's impact is minimal due to years of absence. The holiday chaos escalates when Kurt rents a spacious cabin for everyone to stay together during the Christmas festivities. Dusty tries to connect with Adrianna, but she remains aloof, insisting he isn’t her true father. On another note, Sara attempts to bond with Karen, yet is taken aback by her shocking antics, such as shoplifting.
Meanwhile, Dylan develops a crush on a girl from the neighboring cabin, leading him to seek Brad's guidance about how to approach her. Brad advises him on the intricacies of "friend zoning," but this advice is soon interrupted by Dusty, who provides his take. Their escapades become increasingly absurd, culminating in a Christmas tree hunting expedition where an unfortunate accident causes Brad to accidentally destroy a cell phone tower, for which he faces a hefty fine.
As all these events unfold, the family embarks on a Santa visit, where Kurt humorously suggests that Dylan request a shotgun for Christmas. After some persuasion from Brad and Sara about the implications of such a gift, Dylan changes his request, igniting a fierce desire in Megan to go hunting. On a hunting excursion, however, Megan accidentally injures Kurt, leading to a rather humorous hospital scene where he and Dusty begin to bond.
Their holiday misadventures take a more dramatic turn at an improv comedy club. After some misunderstandings involving Kurt and Don, the men confront deep-seated issues, revealing personal struggles and family secrets. Brad later discovers that Dusty invited Roger (John Cena), Adrianna's biological father, to complicate the holiday further, resulting in a comedic showdown between the two in a playful snowball fight gone wrong.
On Christmas Day, as a blizzard forces the families into a local movie theater, tensions rise, leading to confrontations and unexpected reconciliations among the fathers and their sons. Dylan’s comedic mishaps culminate in an awkward kiss, sending the dynamics of the blended family into a tailspin. In the aftermath, both Dusty and Roger work through their feelings for Adrianna, while Don and Brad mend their relationship.
The film concludes at the airport with comedic implications as they encounter Brad's mom and her new husband's arrival, who turns out to be Chesley "Sully" Sullenberger. In a comically charged moment, Brad draws the line on his feelings about family and acceptance, finally stating that Sully can’t replace his father. This gathering leads to heartfelt resolutions reminiscent of the family’s humorous journey together, providing both laughs and lessons about love and acceptance during the holiday season.
