Christmas Eve. A poor orphan boy trudges through the snow, pathetically. He finally arrives at his miserable cabin. While he is crying, Santa arrives and, singing the title song, offers to take the boy to his workshop. They arrive, and the toys go wild (in the full version, they sing the title song, but this has been censored in some versions due to outdated stereotypes). He plays with a few toys. A candle falls off the tree and starts a fire. The toys try in vain to fight the fire; the boy hooks up a hose to a set of bagpipes and takes care of it.

In happy China, a Mandarin livens up some local music by playing some Pee Wee-style clarinet the American way, and then teams up with a little girl and boy to combat a ferocious dragon.