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On Christmas Eve, hundreds of Christmas elves helm the command centre of Father Christmas's mile-wide,[6] ultra-high-tech sleigh-esque craft, the S-1. The current Santa, Malcolm Claus, and the Christmas elves deliver presents to every child in the world using advanced equipment and military precision. These complex operations are micromanaged by thousands more elves under the command of Malcolm's militaristic eldest son and heir-apparent Steve and his obsequious elfin assistant Peter at mission control underneath the North Pole. Meanwhile, his younger son—the clumsy, nervous, yet enthusiastic Arthur—devotedly answers the letters to Santa.

During one of the delivery operations in Poland, a toy is accidentally activated, waking a child and nearly revealing the presence of Santa. A tense escape operation ensues, during which a Christmas elf aboard the S-1 inadvertently leans on a button, causing a present to fall from the supply line and go unnoticed.

Having completed his seventieth mission, Malcolm is portrayed as far past his prime, his role in field operations largely relegated to that of a figurehead. He delivers a congratulatory speech to the elves, announcing that he looks forward to his seventy-first mission—much to the frustration of Steve, who had prepared to succeed his father as Santa at the conclusion of this mission.

During their family Christmas dinner, a board game degenerates into a tense quarrel between Malcolm and Steve, while Malcolm's father and predecessor Grandsanta, bored by retirement, expresses resentment of the modernization of the operation. After Grandsanta knocks the board off the table, Steve's PDA alerts him, and he hurries away from the table. Arthur follows Steve, and the two learn that a Christmas elf named Bryony Shelfley has found the missed present—a wrapped bicycle for a little girl in England named Gwen, to whose letter Arthur had personally responded. Arthur alerts his father, who is at a loss as to how to handle the situation; Steve argues that one missed present out of billions is an acceptable error whose correction can wait a few days, citing this year's Christmas as the most successful in history. Grandsanta, on learning of the dire situation, whisks a reluctant Arthur away to deliver in EVE, his old wooden sleigh. In the process the three get lost on three different continents, lose several of their reindeer, and land in danger several times, ultimately being mistaken for aliens and causing an international military incident. Arthur learns, to his disappointment, that Grandsanta's true motive is to fulfill his ego, Steve refuses to help them, and that his own father has gone to bed.

Stranded in Cuba after losing the sleigh, the dejected Arthur reclaims his Christmas spirit, and manages to recover the sleigh. Meanwhile, the elves grow increasingly alarmed at rumours of the neglected delivery and the Clauses' unthinkable indifference, sending them into a panic. In response, Malcolm, Margaret, and Steve take the high-tech sleigh-craft to deliver a superior present—to the wrong child.

Arthur and his company manage to reach England but lose the remaining reindeer. Furthermore, a Predator drone scrambled by Chief De Silva of UNFITA intercepts and opens fire on the sleigh, believing it to be an alien spacecraft. Grandsanta sacrifices EVE, while Arthur and Bryony parachute to the ground.

All four male Clauses ultimately arrive at Gwen's house before she awakens, only to have all but Arthur quarrel about who gets to actually place the gift. Noticing that only Arthur truly cares about the girl's feelings, the elder Clauses collectively realize that he is the sole worthy successor. As a result, Malcolm gives Arthur the honour, and Steve, recognizing his own shortcomings, forfeits his birthright and acknowledges his brother's worthiness to take up the mantle. Gwen glimpses a snow-bearded Arthur in a wind-buffeted sweater just before he vanishes up into the S-1.

In a postscript, Malcolm goes into a happy retirement with Margaret—where he also becomes Grandsanta's much-desired new companion—and plays Arthur's board game with him for many happy hours. Meanwhile, Steve finds true contentment as the chief operating officer of the North Pole. Bryony is promoted to Vice-President of Packing, Pacific Division. The high-tech S-1 is rechristened EVIE in honour of Grandsanta's old sleigh and refitted to be pulled by a team of five thousand reindeer led by the original eight, all of whom have managed to return home safely. Arthur happily guides the entire enterprise as Santa Claus XXI.