The story begins at the North Pole as Santa Claus and his Elves sing a Christmas Carol in his shop ("Happy All the Time"). Their song is interrupted by the arrival of Buddy the Elf, who, despite an abundance of enthusiasm, falls short in his toy-making abilities. Charlie, the boss, expresses disappointment, but the elves quickly chime in to make Buddy feel better. Charlie tells Buddy to take a break and asks Shawanda to pick up the extra slack. Unaware that Buddy is listening, they reveal that Buddy is, in fact, a human and not an elf. Buddy approaches Santa for confirmation and Santa reveals that Buddy, as an orphaned baby, had crawled into his toy sack and was accidentally taken back to the North Pole, where he was raised by the Elves. Handing Buddy a New York City snow globe, Santa explains that Buddy's father works in the Empire State Building, doesn't know about Buddy's existence and is on the "Naughty List" for his lack of Christmas spirit. Buddy sets off from the North Pole to New York City ("World's Greatest Dad").

Upon arriving in Manhattan, Buddy is surrounded by the sights and sounds of the city: a Business Woman yells for a taxi, a Jogger in a red suit, two Flyer Guys, and lots of New Yorkers rush by. Asking a passing Teenager where to find the Empire State Building, Buddy sets off to meet his father. Meanwhile, Walter Hobbs and Sam are discussing the unfortunate situation with their latest title, "Jingles, The Jolly Christmas Puppy," from which the last two pages are missing. Secretary Deb shows in Walter's wife, Emily, and his twelve-year-old son, Michael, who want to go Christmas shopping. Suddenly, Buddy bursts in, excited to meet his father for the first time. Stunned with Buddy's declaration that he is Walter's son, Walter demands that the Security Guards escort Buddy out, dropping him at Macy's Christmas department.

At Macy's, a Saleswoman greets Buddy, and the Manager mistakes Buddy for a corporate employee who has been sent to check on the store. Buddy falls in love at first sight with Macy's elf, Jovie, and inspires other Macy's Employees to decorate with some Christmas Spirit ("Sparklejollytwinklejingley"). Jovie agrees to go on a date with Buddy just as Santa's Helper announces the arrival of Fake Santa. Children and Parents line up, but just as a Mother leads her Child to see Santa, Buddy announces to everyone that it is not the real Santa. The two fight, and Buddy is escorted away by Policemen, who take him to the Hobbs' apartment, where Michael is trying to build a science project. Buddy agrees to help if Michael and Emily will write letters to Santa Claus ("I'll Believe in You"). When Walter arrives home, Emily reveals that Buddy is, in fact, Walter's son, as the results of a DNA test have proven.

The next day, Walter takes Buddy with him to work. Office Staff, including Sarah, are bustling around as Mr. Greenway demands a Christmas book to replace "Jingles, The Jolly Christmas Puppy." Deb entertains Buddy, telling him the shredder makes snow. Later, Buddy takes Jovie to a souvlaki stand for their dinner date, where she confesses she's always wanted to see snow. Buddy promises to take her to Christmas Eve dinner at Tavern on the Green ("A Christmas Song"). Back at the office, Walter and Chadwick desperately try to come up with ideas for a new children's Christmas story. Matthews claims to have found a lost manuscript that could save their jobs. Buddy bursts in to tell Walter he's in love and, while Walter talks with colleagues, Buddy decides to make "snow" by putting the manuscript through the shredder. The manuscript destroyed, Walter explodes with anger and tells Buddy to get out of his life ("World's Greatest Dad – Reprise"). A group of Carolers passes as Buddy leaves a goodbye note for Hobbs.

Buddy realizes he forgot all about Jovie. She's been waiting for hours at Tavern on the Green ("Never Fall In Love – With an Elf"). He arrives and apologizes, giving her the snow globe Santa gave him when he left the North Pole. Still upset, Jovie leaves.

Meanwhile, Michael and Emily see Santa out the window while reading Buddy's note ("There Is a Santa Claus"). They go to Walter's office to tell him, but he's preoccupied with trying to think up a story for Mr. Greenway. Suddenly, Buddy returns and suggests his own story ("The Story of Buddy"). Mr. Greenway loves the idea, but is rude to Michael and Buddy, demanding Walter work on Christmas Day. In response, Walter quits his job in order to finally spend time with his family.

When Michael tells Buddy about seeing Santa, everyone rushes to Central Park to help Santa gather the Christmas spirit he needs to make his now-broken sleigh fly. A large crowd gathers around Santa's broken sleigh, including New York One reporter, Charlotte Dennon. To prove to the crowd that it's actually Santa Claus, Buddy reveals what Darlene Lambert and Emma Van Brocklin received as gifts on past Christmases. Buddy urges everyone to get into the Christmas spirit, and Jovie arrives to help him ("A Christmas Song – Reprise"). The New Yorkers sing, and Santa's sleigh rises into the air, Christmas spirit restored and everyone gets what they want for Christmas!