As the years roll by since Scott Calvin (Tim Allen) slipped into the iconic red suit, his life has taken on a fresh perspective. Now happily married to Carol Newman, a dedicated teacher at the North Pole, their relationship is blossoming in joy and excitement as they await their first child. On Christmas Eve, Carol entertains a group of eager young elves with enchanting tales from her life with Scott, crafting stories that blend romance and adventure.
Simultaneously, Scott has invited his in-laws, Sylvia (Joan Cusack) and Bud Newman, and his ex-wife Laura, along with her husband Neil, their daughter Lucy, and his son Charlie. As the holiday spirit fills the air, Scott finds himself summoned to a clandestine gathering of the Council of Legendary Figures, which includes notable characters like Mother Nature, Father Time, the Easter Bunny, Cupid, the Tooth Fairy, and the Sandman. They convene to address the increasingly troublesome antics of Jack Frost (Martin Short), who feels overlooked, as no significant holiday celebrates him.
In the meeting, Mother Nature proposes a firm reprimand for Frost's antics; however, Scott is more focused on masking his true identity as Santa Claus in front of his in-laws. In an unexpected twist, Jack Frost negotiates a milder sentence: community service at the North Pole, where he will help Scott and the elves decorate their workshop with festive Canadian-themed decorations. Under the pretense of being a skilled toymaker from Canada, Scott agrees to this arrangement, much to Carol’s parents’ oblivion.
Nevertheless, Frost's intentions are far from innocent. He deceives Curtis, the Head Elf, into disclosing the "Escape Clause," a mysterious provision that would allow Scott to relinquish his identity as Santa and revert to his former life. Equipped with this information, Frost steals Scott’s cherished snow globe, which houses a miniature version of himself as Santa Claus. If Scott holds the globe and wishes to erase his Santa past, he will be transported back in time, completely obliterating his legacy as the beloved jolly old elf.
As Lucy uncovers Frost's sinister plan, she finds herself trapped in a closet, while her parents become frozen in a chaotic scene conjured by Frost's magic. The stakes intensify as Frost orchestrates a myriad of "accidents," forcing Scott to reconsider his Santa role. With Christmas's fate hanging by a thread, the question remains: will Scott figure out a way to foil Frost's devious plans and maintain the enchanting spirit of the holiday season?
In a twist of fate, Scott is unknowingly pushed into activating the Escape Clause and suddenly finds himself back in 1994, in his nostalgic front yard. Here, he relives the moment when he first took over for the original Santa after an unfortunate accident on a rooftop. In this alternate timeline, Frost seizes the opportunity to grab Santa's coat from Scott's grasp, catapulting him once again through time and space.
In this unfamiliar new present, Scott is shocked to discover that his priorities have drastically shifted, with work overtaking the significance of family. Additionally, he learns that Laura and Neil are now separated, and Carol is nowhere to be found. This sobering realization highlights the sad consequences of neglecting personal relationships in favor of career advancement.
Determined to rectify his past, Scott embarks on a mission to find Lucy and Neil, who are currently enjoying a holiday at the North Pole, now adapted into a commercialized attraction open to visitors worldwide. As he traverses this bizarre landscape, Scott is appalled to witness Frost's betrayal of the true Christmas ethos. The once-cheerful elves toil in despair, and the reindeer are confined to a petting zoo, with parents even able to bribe their way onto the "nice" list, reducing the essence of the holiday to mere transactions.
In his quest for Lucy, Scott uncovers unsettling secrets surrounding Neil and Laura's fractured relationship. Neil reveals the intolerable strain that Scott's career obsession had placed on him, which ultimately caused Charlie to reject him as a father—a decision that triggered the end of Neil and Laura's marriage.
Fuming over Frost's betrayal, Scott devises a cunning plan to distract him while recruiting Lucy's help to reclaim the snow globe. Though Lucy manages to pass the globe discreetly to Scott, Frost's cleverness prevails, and he snatches it back just as Scott aims to exploit the Escape Clause again.
Undaunted, Scott employs a further clever tactic by playing a recorded message of Frost’s heartfelt lament, "I wish I'd never been Santa at all," from a novelty pen given by Curtis. This clever move reactivates the Escape Clause, sending both Scott and Frost back to 1994. Seizing this chance to restore harmony, Scott ensures his counterpart wears Santa's coat once again, resetting the timeline.
As Scott's family dynamics transform significantly, Frost finds himself confronted by authorities clad in festive attire. At the same time, Scott candidly reveals the grim reality: he is stuck in his current situation until he can liberate himself, a notion that fills him with dread. However, he gains support from Lucy, whose heart is open to bringing her family back together. Drawing from her cherished snow globe gift, Scott encourages Lucy to show Frost compassion, which ultimately thaws his frosty demeanor. Miraculously, Laura and Neil return to their human forms, while Frost emerges with a renewed spirit of redemption.
As the festive season culminates, Scott once again dons the iconic red suit, proudly presenting himself as Santa Claus to Carol's parents. Just as the clock ticks down with mere hours left until his Christmas delivery mission begins, an unexpected turn of events occurs: Carol goes into labor, leading to the joyous arrival of their little one, whom they affectionately name Buddy Claus, reflecting the beautiful culmination of Scott's remarkable journey.
