In an attempt to change his indolent, spoilt, and conceited son, Jesper Johansen, the Royal Postmaster General of 19th-century Norway, enrolls him in a postman training academy. After Jesper consistently performs below expectations, his father sends him to the far-off island settlement of Smeerensburg in the north, where he must post 6,000 letters in a year. Jesper will lose access to the family's wealth if he fails.
Jesper discovers that the Ellingboes and the Krums, two rival family clans, make up nearly the whole population of Smeerensburg. He also meets a teacher, Alva, who is in a terrible environment and circumstances. Since no children are ready to learn, she has decided to save so many for all these years and to move out of the city. Jesper was placed in the worst post office where no postman had ever stayed for a month. Jesper tries in vain to get letters from the people in the town.
Jesper fortunately gets a drawing by one of the Krum kids when the wind blows. But refuses to hand it over to him instead he asks the kid for a penny to get the drawing back as postage. Still, it was a failure. After searching a large area outside of town, he discovers a remote home owned by a tall, solitary woodsman named Klaus and stocked with homemade toys. Fearful of Klaus's formidable appearance, Jesper runs away, leaving with him a sketch belonging to one of the Krum kids from Smeerensburg. Klaus makes Jesper take him to the house shown in the painting, where he slips the youngster a toy that makes him feel better.
As word gets out, the other kids go see Jesper the next day, thinking that if they write Klaus a letter, they'll get a toy. Seizing the opportunity to move closer to his objective, he triggers the kid to write a letter to Klaus for a new toy. Jesper asks Klaus whether he can give him his toys. Klaus agrees that if they work at night and Jesper keeps delivering the toys covertly.
The Krum kid plays with an Ellingboe girl after he finds him a toy and their clans turn furious. Clans warn the kids not to mingle with their rivals as more kids submit letters to Klaus. Jesper meets a new kid named Margu who doesn’t speak English. Jesper just avoids her because of their communication issue. With Jesper’s advice, kids reach Alva to learn to read and write. Thinking of Jesper ruining her plan of escaping from Smereensburg after 5 years, she gets pissed off.
Klaus’s name has been widely heard among the kids. Alva was a bitter teacher before she became a fishmonger. Inspired, Alva uses her savings to reopen her school when the kids beg her to teach them to read and write so they can write letters. To carry more new presents, Klaus and Jesper gather reindeer to carry and ride. Jesper informs them that Klaus only presents items to excellent kids and is aware of any misbehavior. Little by little, the children's acts of goodwill encourage the other residents of the town to put an end to their long-standing disagreement.
When he decides to put Klaus and Jesper down, their action accidentally leads to the breaking of the cart's wheel, which then turns into a sleigh. And rumors spread like, “sleigh pulled by a magical flying reindeer.” After a while, Jesper realizes that Klaus's supply of toys is virtually empty. Both the Ellingboes and Krums come together to stop Klaus. Jesper tries to convince Klaus to produce more toys in time for Christmas as his deadline draws near, and a brawl breaks out when Klaus declines.
Driven by Márgu, a Sámi girl incapable of writing or speaking English, Jesper collaborates with Alva to assist Márgu in writing a letter before attempting to construct a sled for her. When Klaus sees Jesper's work, they make up, and together they finish the sled. When Jesper delivers the sled and witnesses Márgu's happiness, he is truly touched.
Klaus informs Jesper that after making the toys for the children he and his wife Lydia wanted to have but were unable to conceive, Lydia passed away from a disease. Klaus accepts the Christmas plan and agrees to work for it every year. Jesper, who couldn’t explain that he is planning to move out of the Smeerensberg since the beginning meets Alva. Jesper is torn between leaving Smeerenburg as his relationship with Alva and the town grows stronger.
Márgu shows up to lend a hand, along with the rest of her clan. Elderly family members Aksel Ellingboe and Tammy Krum, however, decide to call off the conflict between Jesper and Klaus to allow the families to restart their rivalry. They work together to uncover Jesper's plot and send enough letters to surpass his goal.
On Christmas Eve, Jesper's father comes to congratulate his son, unintentionally disclosing to Jesper's friends the self-serving motivations behind his actions. Jesper's father sees his son's guilt just before they leave town, and after a private conversation, he lets Jesper stay. As Jesper tries to stop the elders and their enraged mob from destroying the Christmas toys, Olaf, Tammy's son, and Magdalene, Aksel's daughter, fall in love in the ensuing chase. Tammy seemed to destroy all of the Christmas presents, but after the town's youngsters told Alva and Klaus about the plot, they had already replaced the toys with decoys. Nevertheless, Jesper has won Klaus and Alva over with his deeds.
The elders of the family are compelled to put an end to their rivalry since their children are getting married, and Smeerensburg turns into a joyful town. Jesper and Alva are married and have two kids together. For eleven years, he and Klaus kept giving gifts in Smeerensburg and beyond. Twelve years later, Klaus feels his wife's presence in the breeze and leaves to be with her. Despite his passing, Klaus continues to exist in Christmas tales, and as a result, Jesper looks forward to Klaus's annual return to distribute toys worldwide on Christmas Eve thereafter.
