A few days after Christmas, Steve Anderson, a former getaway driver, is released on parole from prison, with his parole officer, Ruth, informing him that she will consider any occasion where he misses his meetings with her as a violation of his parole and send him back to prison. Amid reports of reindeer wandering the streets of London, Steve is surprised when his son, Tom, calls him to claim that he has found Santa in his family´s garden shed. Steve responds to the call, but although Santa mentions a time Steve saw a shooting star as a child, he dismisses 'Santa' as a madman and sends him out of the shed. Alone, Santa tries to retrieve his reindeer from Battersea dogs home, but is caught when he tries to catapult one of them out and is sent to Lambeth prison.
The next morning, Steve appears for his first scheduled day with Tom, but Tom refuses to go anywhere but to see Santa at prison. Santa instructs Steve on how to find his reindeer, and hence his crashed sleigh, and in return Steve sends him to the barber who provides him with a few pointers on how to cope in prison. While Santa is asked to act as the Father Christmas for the local prison party, Steve finds the field in Richmond Park where the reindeer have been taken, with Tom establishing which reindeer is the leader, Dasher, as Dasher communicates through flatulence. They are able to find the sleigh, but when Steve calls Santa to update him, he accidentally releases all of the bright green magic dust the sleigh needs to fly.
Stuck for options, Steve agrees to go to Hermey's Tower in Suffolk, where Santa informs him that he will find help, based on a book in the sleigh's glove compartment, despite this trip meaning that Steve will miss his parole hearing. Despite such delays as difficulty hitch-hiking and a close call that forces them to steal costumes from a pantomime, they are able to reach Hermey's Tower, but are unable to work out what to do next.
Back at the prison, Santa manages to convince the other prisoners of his identity when they see letters hit the window addressed to Santa, followed by Santa recounting some of the last presents he left for the prisoners when they were children. However, when parole officer Ruth comes to prison to report Steve has missed his parole hearing, she not only identifies him as the man who stole Dasher, but also identifies Santa as 'Harry Mitchell', who was arrested while trying to climb down a chimney over twenty years ago but escaped en route to jail. However, the prisoners begin to acknowledge the truth when an emergency news report reveals that Australian children have woken up with no presents in their stockings.
With Santa transferred to solitary, Steve contemplates giving up, but Tom is able to translate a clue in the book to work out how to open Hermey's Tower, which is one of several receiving towers that pick up the letters to Santa and divert them to Lapland. Travelling through the letter-tunnel, Steve and Tom reach Elf City, where Steve convinces the elves to let him use an old sleigh to rescue Santa from prison while deploying a squirrel called Oswald to release the other reindeer, Steve arguing that those children who have woken up without presents may simply find them in other areas. They see that the green magic powder is used for creating the northern lights, that the reindeer walk on in the skies. Reaching the prison, they are able to use a magic slinky to enlarge a small chimney so that Steve and Tom can enter the prison.
At the same time, Santa is about to be transferred to solitary, but attempts a break-out with the aid of a dwarf prisoner known as 'Sally', culminating in a fight in the prison gym that ends when Santa punches the guard responsible for supervising the transfer when he says he hates Christmas. As Santa and Sally attempt to break out through a tunnel, Steve writes a letter to Santa so that it will lead him and Tom to Santa, where they intercept Allison, Tom's mother, as she drives to the prison looking for Tom. When the police discover the car, Allison is forced to go along with the request to take them to a park, Santa buying time by using a gun loaded with reindeer droppings as a distraction.
They reach the park where Oswald has reassembled the sleigh and the reindeer, Santa inviting Sally to accompany him, just before the police and Ruth arrive. As Ruth asks why Santa would choose Steve to help him, Santa notes that Steve is commendable because he never stops trying, and reassures Tom that adults can make mistakes but just need a chance to believe in the magic of Christmas. With that, Santa takes off in the sleigh and departs for his night's work, wishing them all a Merry Christmas and thanking Steve and Tom for their help, expressing faith that the police will let him off once they see the truth.