Dr. Venture stands in a snowy graveyard before a cloaked figure. The ominous specter points to a tombstone which is clearly inscribed "Dr. Thaddeus S. Venture". Venture falls to his knees before the grave, weeping and asking the spirit if it is meant to be his own grave. The figure removes its cloak to reveal that it is Brock, who responds with typical deadpan sarcasm. The scene dissolves to show Venture waking up in his bedroom, delighted that it was only a dream. He prances out to the balcony, where he asks a young boy (Hank Venture dressed like Charlie Brown, complete with a pathetically small Christmas tree as in A Charlie Brown Christmas) below what day it is, to which he replies, "Duh! It's Christmas Day!" Venture dances with glee for several moments until his nose begins to glow, and he flies smoothly into the air. As he floats (suddenly in nothing but his underwear) over the compound, he calls out Christmas greetings to the X-1, Dr. Orpheus and even H.E.L.P.eR. (dressed as Tiny Tim), but ignoring a sad jack-in-the-box with Dean's head. Still soaring, Venture laughs maniacally until he crashes into a tree. He wakes up again to find his head resting on the remote control, cycling the television past a number of Christmas specials that affected his dreams.
As Venture shuffles into the kitchen, he greets Brock. The bodyguard has been trying to order a gift for Dean, who has proven difficult to shop for. Venture helpfully points out that the catalog Dean "accidentally" left lying around in a not-so-subtle hint is from 1976. Brock walks to his bedroom, where he finds Hank snooping in his closet looking for Christmas presents. Flustered at being caught, Hank pretends he was searching for the first thing he grabs, which turns out to be a handful of pornographic videos with Christmas themes. As he gapes at the covers of Frothy the Blowman, Jingle Balls, and Miracle on 69th Street, Brock quickly suggests Hank help him hang the Christmas lights. On the way out, Hank notices a decorative nativity scene on a table. He begins to place the baby Jesus figure in its manger, but Brock stops him - it is a Venture family tradition to place Jesus in the manger at midnight. After the two leave the room, one of the seemingly plastic figures quickly scrambles down the table leg. The Monarch congratulates the minuscule agent, Tiny Joseph, on his work by radio and explains his devious plan to Dr. Girlfriend. The table is rigged with C-4 explosives that will detonate when a prong on baby Jesus' back makes contact with the manger, leveling the Venture compound.
The scene changes to that night at the compound. Venture's Christmas party is in full swing, and the guests include Pete White, Master Billy Quizboy, the original Team Venture, Mandelay (from "The Incredible Mr. Brisby"), Richard Impossible and the obviously-pregnant Sally ("Ice Station – Impossible!"), Sasquatch and Steve Summers ("Home Insecurity"). White, with a sprig of mistletoe dangling from a strap around his head, begins flirting with an unimpressed Triana Orpheus. The mistletoe disintegrates in a puff of smoke as White notices Dr. Orpheus glaring at him. As Pete wisely moves away, Orpheus humiliates Triana by announcing to the room that his daughter's virginity is not up for grabs. Venture expresses surprise that a necromancer is attending a Christmas party, but Orpheus explains that it is a quaint if laughable bit of nonsense he enjoys.
In the kitchen, Dean is disappointed with the Christmas stories from the toll lines he has called. Since it is another tradition to have a good story for Christmas, he and Hank grab one of Orpheus' mystical books. They open to a page at random and Dean begins to read the unfamiliar words aloud. Orpheus rushes in to stop the incantation, but is too late.
The front door bursts open to admit a horrid, green-skinned supernatural creature with horns, pointed ears and two screaming children in a container strapped to his back. As it begins prowling menacingly among the puzzled guests, Orpheus explains to Venture that it is the Krampus, a Germanic demon that accompanied Saint Nicholas in olden times. While Nicholas rewarded the good children with presents, Krampus meted out punishment to the bad children. Orpheus has no power to banish it, and it will remain until it has performed its duty by punishing the wicked. Suddenly the creature begins assaulting Dr. Venture, first by battering him and then by attempting to sodomize him through his jumpsuit. Venture calls Brock for help, who storms in dressed as Santa Claus and hurls himself upon the Krampus ("Hey fancy pants; I've been naughty."). After a few moments of battle, the clock strikes midnight and the demon abruptly stands and walks towards the door. On his way past, he picks up the baby Jesus figure and drops it into the manger - and a massive explosion destroys the building.
Once more, Dr. Venture emerges from a dream... this time on board the X-1 with a rectal thermometer in place. Brock calmly explains that Venture hit his head and was unconscious for a while. The plane has crashed, however, in Bethlehem. In fact, they have crashed into the Church of the Nativity, almost fully destroying the structure. All they can do is wait, Brock says, to see whether the Israelis or the Palestinians get to them first. Dr. Venture then calmly replies, in a topical statement, that the X-1 runs on plutonium and that if the Palestinians really do find them first, they'll love the Venture family for bringing the X-1 to them.