As Christmas approaches, Greg's enthusiasm for remaining on the nice list grows stronger, particularly because his ultimate wish is to acquire the highly sought-after Mega Station 9000 video game console. His mother, Susan, is determined to infuse some holiday spirit into their home; she introduces a rather unsettling stuffed elf doll named Elfrendo. This peculiar gift is meant to monitor their behavior for Santa, which causes Greg some dismay.
In an effort to stay on Santa's good side, Greg persuades his friend Rowley to assist him in crafting a gigantic snowman. Unfortunately, this endeavor leads to the creation of an enormous snowball that wreaks havoc on their lawn. Meanwhile, down the street, a beleaguered snowplow operator finds herself overwhelmed by a rowdy group of children. As the colossal snowball continues to roll out of control, it inadvertently damages the plow's blade, forcing the two friends to abandon their snowy creations in a state of chaos.
During a family drive through the town showcasing festive decorations, Greg discovers that the dumpster where he and Rowley carelessly discarded their clothing was actually a toy donation bin. This bin is filled with gifts meant for those less fortunate, which leads to an uproar when "wanted" posters featuring the "snowball bandits" appear all over town. To remedy the situation, Greg and Rowley devise a scheme to recover their abandoned items.
Just as the snowstorm enveloping their community begins to subside, an unforeseen twist occurs: the family's power goes out, plunging them into darkness. This sudden loss of modern comforts escalates tensions within the household. While Susan’s efforts to restore holiday cheer struggle to land, Frank finds his attempts to manage household supplies thwarted by suspicious disappearances.
In the midst of this chaos, Rodrick becomes fixated on uncovering the identity of the snowball perpetrators, suspecting that two high schoolers might be behind the theft of Greg and Rowley's belongings and the disarray in the neighborhood. As tension and irritability peak within the family, a burst pipe adds to their struggles, further straining relationships. The situation takes a dramatic turn when Manny goes missing, prompting a frantic search that ultimately leads to the revelation of his secret cache of supplies - a find that exposes the true source of their troubles.
As Christmas Eve dawns, a renewed spirit spreads joyfully among the Heffleys, prompting them to unwrap a gift early. Expectations run high for Greg, who believes he is about to receive the coveted video game. To his disappointment, he finds only clothing items gifted by his grandmother inside the surprise package. As the snowfall diminishes, Greg seizes the opportunity to enact his plan to reclaim their lost treasures from the donation bin. With Rowley by his side, they laboriously sift through the snowdrifts, their determination eventually yielding success as Greg locates their abandoned belongings.
However, as they prepare to leave, Rowley suddenly bolts upon seeing the snowplow operator from earlier, whose unexpected arrival had set off their previous commotion. The woman, pleased with Greg’s earlier shoveling efforts, generously offers him a ride home on her snowplow. In their conversation, Greg learns about her life as a single mother working to support her young son, Tyler. Surprisingly, he discovers that she wishes for the very same Mega Station, but due to financial constraints, it has remained out of reach. Despite their previous misunderstandings, the snowplow lady’s warmhearted nature and authentic struggles resonate with Greg, who leaves the interaction feeling uplifted.
As the Heffleys' festivities resume with power restored, a police cruiser arrives outside their home, catching the family off guard. It soon becomes clear that Greg has been caught in the middle of snowball warfare. Instead of attempting to evade consequences, Greg chooses honesty and turns himself in. To his astonishment, the authorities are actually soliciting donations for a local charity. Inspired by the snowplow lady's circumstances, Greg decides to donate his Mega Station to her and Tyler, marking a pivotal moment in his journey toward appreciating his family and embracing the importance of meaningful gifts. In the end, as he wistfully tosses away his broken Elf on the Shelf figurine into the donation bin, an incredible twist occurs: the toy mysteriously reappears, silently keeping watch over Greg like a protective spirit.
