Santa Claus narrates the origin of Buddy, a human whose mother gave him up for adoption before she died following his birth, and who somehow crawled into Santa's toy sack on Christmas Eve. He is taken to the North Pole and raised among the elves, growing into adulthood without ever learning his true origins, despite his noticeable height difference and a lack of traditional elf skills. When Buddy overhears the truth, he confronts Santa, who sends him to New York City to find his birth father, Walter Hobbs, a children's book editor who sits on Santa's naughty list because he doesn't believe in Santa.
Buddy lands in the city and arrives at the publishing office in the Empire State Building to greet Walter Hobbs, who mistakes him for a singing telegram and calls security to escort him to Macy's Department Store. He then lands a job as one of the elves at the North Pole Village and quickly falls for his cynical coworker Jovie. The next day, he exposes a mall Santa as an impostor, triggering a scuffle that ends with the police bringing him to the Hobbs family's apartment. There, he helps Emily Hobbs and Michael Hobbs complete a school science project and is allowed to stay for the night.
DNA tests confirm Buddy is Walter Hobbs’s son. Walter reluctantly brings Buddy to his office at work, where his supervisor, Mr. Greenway, threatens to fire him if he cannot publish a successful new book by Christmas Eve. That evening, Buddy takes Jovie to a romantic dinner at Tavern on the Green and helps bring out her Christmas spirit by having her sing “A Christmas Song”. Excited to share the news with Walter, Buddy makes it “snow” in the office by shredding a manuscript Walter was working on. Enraged, Walter expels Buddy from the office, effectively disowning him.
A despondent and hungry Buddy encounters some out-of-work Santa actors at a Chinese restaurant and delays arriving for his next date with Jovie, to whom he gives a snow globe Santa gave him. She is disappointed and departs. Emily Hobbs and Michael Hobbs read Buddy's goodbye letter and set out to retrieve him, but not before noticing Santa's sleigh outside their window. The trio arrives at the Empire State Building, where Walter is frantically trying to craft a pitch for Mr. Greenway.
Buddy suggests a story based on his adventure. Mr. Greenway thinks it should be about a horse and orders Walter to work through Christmas on the idea. However, when he rudely criticizes Walter's sons, Walter quits his job. Michael informs Buddy about Santa's sleigh, and the Hobbs family races to Central Park, as Buddy realizes the sleigh needs Christmas spirit to be able to fly again.
In Central Park, Buddy takes a microphone from a news crew covering what appears to be a UFO event and encourages everyone watching to spread Christmas spirit to repower Santa's sleigh. Jovie arrives and begins singing “A Christmas Song,” inspiring everyone watching to sing along and thus restoring the sleigh's flight. Santa invites Buddy to come home to the North Pole, but he chooses to stay in New York, having found a new purpose in making the city’s residents happy. Some time later, Buddy and Jovie settle down and have a son, Baby Buddy, and the Hobbs family visits Santa's North Pole residence on Christmas Day as part of their new annual tradition.
