On a snowy winter day, Snoopy and the rest of the Peanuts gang merrily ice skate (“Christmas Time Is Here”). Charlie Brown tells Linus that Christmas time depresses him, and Linus replies, “Of all the Charlie Browns in the world, you’re the Charlie Browniest.”
Checking his mailbox, Charlie Brown realises he hasn’t received a single Christmas card. Pig Pen builds a very dirty snowman while Snoopy reads his morning paper. Schroeder, Patty, Lucy and Linus play in the snow (“Snowballs”).
Charlie Brown visits Lucy’s psychiatric booth and – for five cents – tells her his troubles. After listing a multitude of potential conditions, Lucy diagnoses Charlie Brown with pantaphobia: the fear of everything. Realising Charlie Brown needs involvement, Lucy enlists him to direct the Christmas play. She admits that the holidays depress her, too... mostly because she never gets what she really wants: real estate.
Snoopy elaborately decorates his doghouse in hopes of winning the “spectacular, super-colossal neighbourhood Christmas lights and display contest.” Charlie Brown is appalled (“My Own Dog, Gone Commercial”).
Sally enlists Charlie Brown’s help in writing to Santa Claus. But her requests are so materialistic (“just send money!”) that he exits more distraught than ever.
At rehearsal for the Christmas play, Schroeder plays the piano as everyone dances (“Christmas Is Coming / Linus & Lucy”). Charlie Brown enters and takes command, but the kids soon ignore him and resume frolicking. He grabs a megaphone, stops the music, and they finally get started. Lucy, the “script girl,” hands out their parts: Pigpen and Frieda will play the innkeepers, Shermy will be a shepherd, and Snoopy will play all of the animals. He demonstrates his ability to play a sheep, cow, and penguin. Lucy imperiously takes charge, but Snoopy mocks her behind her back. Linus, also playing a shepherd, worries about the number of lines he’ll have to memorize. Lucy motivates him with five good reasons.
Charlie Brown attempts to lead the rehearsal, but the kids refuse to cooperate and mayhem ensues. To change the atmosphere and “set the proper mood,” Charlie Brown and Linus go out to get a Christmas tree.
At the tree lot, Charlie Brown is disheartened by all the aluminium trees. He finds a small live tree. Linus worries that Lucy won’t like it, but Charlie Brown says, “I think it needs me,” and they set off to return.
Meanwhile, Schroeder plays piano while Snoopy dances and Lucy complains (“Schroeder’s Christmas Concert”).
Charlie Brown and Linus return with the tree, and the other kids mock Charlie Brown for his disastrous choice, calling him “completely hopeless.” Admitting he doesn’t understand Christmas at all, Charlie Brown asks, “Isn’t there anyone who knows what Christmas is all about?”
Linus quietly walks to centre stage, stands beneath a solo spot, and quotes the biblical book of Luke, in which the angel of the Lord visits shepherds abiding in the field to prophesy the birth of a saviour. Ending with “Glory to God in the highest, and on earth peace, good will toward men,” Linus adds, “That’s what Christmas is all about, Charlie Brown.”
Charlie Brown takes the tree outside, passing Snoopy’s doghouse, which has won first prize in the decorating contest. Determined not to let commercialism ruin his Christmas, Charlie Brown adds one ornament to his little tree. The tree wilts and – crying “I’ve killed it!” – Charlie Brown exits, defeated.
Linus and the others enter. Deciding the tree just “needs a little love,” Linus leads the others in using some of Snoopy’s decorations to spruce up the tree. When Charlie Brown returns, the little sapling has transformed into a beautiful, festive Christmas tree. Shouting “Merry Christmas, Charlie Brown,” the kids all join in song (“Hark, The Herald Angels Sing”).