Before the Thanksgiving parade at Cole's Department Store, Dorey Walker, the store's special events director, fires Tony Falacchi, who had been working as the Santa Claus after getting intoxicated. In her search for a replacement, she spots an elderly man who had been berating Falacchi and persuades him to take over; the man introduces himself as Kris Kringle. Kris performs so well during the parade that he is hired by Cole's, even though he believes he is the real Santa.
Kris wins the affections of the shoppers, especially the children, with his warm manner and unusual habit of directing buyers to cheaper toy options at other stores. That unexpected approach becomes a surprisingly effective marketing campaign for Cole's, lifting the store from a recently endured hostile takeover to a renewed public favor. This sudden success irks Victor Landberg and his rival firm Shopper's Express, led by Jack Duff, who start plotting to undermine Kris.
Meanwhile, Dorey Walker has convinced her six-year-old daughter, Susan Walker, that Santa Claus does not exist, and she worries about the influence Kris is having. Dorey’s neighbor, attorney Bryan Bedford, tries to persuade Susan to keep the faith. One night, Kris babysits Susan, and she confides her Christmas wish: she wants a dad, a house pictured in Cole's Christmas catalogue, and a baby brother. Kris asks if she would start believing in Santa if those wishes came true, and Susan agrees. That same night, Bryan also proposes to Dorey, who declines.
Landberg and Duff realize Kris believes himself to be Santa and hatch a plan to ruin his credibility. They hire Falacchi to provoke Kris in the street, then stage an injury when Kris raises his cane, leading to Kris’s arrest. Bryan steps in with legal help and arranges a court hearing where Kris can defend himself. Dorey helps drum up support from Cole's chairman, rallying the public behind Kris. In the courtroom, prosecutor Ed Collins presents a case that Kris is mentally unstable, which allows him to declare that he is the real Santa Claus.
The night before Christmas Eve, Judge Henry Harper privately confides in Bryan that, despite Kris’s genuine goodwill, he may be forced to rule him insane unless a miracle occurs. The next morning, Susan brings the judge a Christmas card bearing a $1 bill with the words “In God We Trust” circled on the back. The judge realizes that if the U.S. Treasury can place its faith in God on money, the people of New York can place their faith in Santa as well. He dismisses the case, declaring that Santa is real, existing in the person of Kris Kringle.
Following the ruling, Dorey Walker and Bryan Bedford recognize their true feelings for each other and marry in a small ceremony after the Christmas Eve Midnight Mass at St. Francis Church in New York.
On Christmas morning, Susan wakes to the news of the marriage and is thrilled to learn she has received one part of her Christmas wish. Together, Susan, Dorey, and Bryan drive out to the catalogue house and discover that Kris—who has now departed “overseas”—has arranged for them to purchase it, a dream made possible by the size of Dorey’s Christmas bonus. With two of Susan’s wishes fulfilled, Dorey asks her what the third was, and she proudly reveals that it was a baby brother. Dorey and Bryan share a surprised smile, then kiss, realizing the final wish may soon come true.
