Jesper, played by Jason Schwartzman, is the indolent son of a Postmaster General who purposely fails to meet expectations at his father's postal academy. As a last-ditch effort to reform him, Jesper's father sends him to the remote island town of Smeerensburg. Here, he must fulfill the daunting task of sending out 6,000 letters within a year; failure to do so will result in losing access to the family estate. Upon arrival, Jesper learns from the sardonic ferryman Mogens, voiced by Norm Macdonald, and the disillusioned ex-teacher turned fishmonger, Rashida Jones, who plays Alva, that the town is nearly entirely composed of two opposing families, the Ellingboes and the Krums, who are embroiled in a bitter feud and hardly communicate, let alone send letters.
As months go by with no letters sent, Jesper becomes increasingly desperate to fulfill his obligation. He discovers a remote residence on the town's map and ventures there, where he encounters a mysterious, reclusive woodsman named Klaus, brilliantly portrayed by J.K. Simmons, whose home is overflowing with beautifully crafted toys. Initially frightened by Klaus’s imposing appearance and demeanor, Jesper tries to flee but inadvertently leaves behind a drawing created by one of the local children that reflects his troubled home life.
Just as Jesper is ready to abandon Smeerensburg, Klaus approaches him with a surprising demand: he wants to deliver a package to the boy featured in the drawing—a toy. This act ignites a spark of excitement among the town's children, who soon rush to Jesper with requests for toys from Klaus. Recognizing an opportunity, Jesper proposes to Klaus that he donate the toys from his home, to which Klaus agrees on the condition that the deliveries take place at night so he can join in the fun.
As word of their kind deeds spreads throughout the town, more children begin writing letters to Klaus, fueled by the belief that he will deliver toys to well-behaved kids. Jesper manipulates the situation further by claiming that Klaus knows when children have misbehaved and promises toys only to those who are good. The children's newfound philanthropic efforts begin to transform the town and encourage an end to the feud between the families. Alva reopens her school to teach the children to read and write, fostering a sense of community that was long lost.
However, Jesper and Klaus soon find themselves running low on toys. Jesper suggests they create more in time for Christmas. Initially resistant, Klaus reconsiders after they collaboratively make a sled for a little Sámi girl from a neighboring settlement. During this process, Klaus begins to share the heart-wrenching story of his late wife, Lydia, explaining that he crafted toys for the children they never got to have. Recognizing the joy their work has brought to the children, Klaus eventually embraces the Christmas spirit, and the Sámi community rallies to assist in fulfilling this newfound mission.
Meanwhile, the heads of the feuding families, Will Sasso as Mr. Ellingboe and Joan Cusack as Mrs. Krum, establish a fragile alliance to thwart Jesper and Klaus, yearning to maintain their family hostilities. They deceive Jesper's father into thinking that Jesper had sent out 14,000 letters, unveiling the true nature of his actions since arriving in Smeerensburg. Having observed Jesper's remorse after they discuss his choices, Jesper's father recognizes the tangible changes in his son and offers him the choice to stay.
As the heads of the families plan to sabotage the Christmas toy deliveries, Jesper makes a final attempt to stop them. Although his efforts seem futile, a surprising twist occurs when Mr. Ellingboe's rough daughter, Magdalone, voiced by Sergio Pablos, and Mrs. Krum's bumbling son, Olaf (also Sergio Pablos), develop feelings for one another. Meanwhile, Alva receives word of the families' evil plot and informs Klaus, who manages to replace the actual toys with wooden decoys before they can be destroyed.
Ultimately, Jesper finds redemption, and Smeerensburg transforms into a vibrant, compassionate community. The marriage between the children of the feuding families leads to a long-overdue cessation of hostilities. For the next decade, Jesper and Klaus share the joy of delivering gifts, extending their reach far beyond Smeerensburg.
As the years pass, Klaus mysteriously vanishes, believed to have rejoined his beloved wife. Jesper, who has married Alva and had two children, reflects on their friendship each Christmas Eve by the fireplace, eagerly awaiting the spirit of Klaus as he continues to spread joy and deliver toys to children across the globe.
