Christmas Evil (originally titled You Better Watch Out, also known as Terror in Toyland) is a 1980 American psychological slasher film written and directed by Lewis Jackson and starring Brandon Maggart. The plot follows a deranged man obsessed with Santa Claus who eventually goes on a murderous rampage dressed in a Santa suit. Since its release, it has gained a cult following, including praise and repeated viewings by director John Waters.
While not prosecuted for obscenity, the film was seized and confiscated in the UK under Section 3 of the Obscene Publications Act 1959 during the video nasty panic.
In suburban New Jersey, on Christmas Eve 1947, a young boy named Harry Stadling sees his mother being sexually groped by his father, who is dressed up as Santa Claus. Heartbroken, the child rushes up to the attic and cuts his hand with a shard of glass from a shattered snow globe.
33 years later, an adult Harry (Brandon Maggart) works in a low-level position at the Jolly Dreams toy factory, where his colleagues consider him a "schmuck" and make fun of him. At home, he has taken it upon himself to become the next true Santa: he sleeps in costume, and his apartment is resplendent with Christmas décor. He spies on neighborhood children to see if they are being "good" or "bad" and keeps detailed records of their behavior.
Harry's coworker Frank asks Harry to cover his shift on the assembly line in order to be with his family. However, on his way home from work, Harry sees Frank drinking with friends at a local bar. Distressed by the man's duplicity, Harry breaks one of his dollhouse figures while humming Christmas tunes. The following day, he cancels Thanksgiving dinner with his younger brother Phil (Jeffrey DeMunn) and his family. Phil has been constantly angered by his brother's odd behavior, while Phil's wife Jackie (Dianne Hull) is more sympathetic.
At the company Christmas party, the owner of Jolly Dreams, Mr. Wiseman, announces that the company will donate toys to the children of the local hospital, provided production increases sufficiently and the employees contribute with their own money. Mr. Fletcher, one of the company's high-ranking executives, introduces Harry to new training executive George Grosch, who devised the donation scheme. Harry is angry at both for not really caring about the children. That night, he fills bags with toys he stole from the factory and other bags with dirt.
On Christmas Eve, while gluing a Santa beard to his face, he enters a fugue state that has him convinced to truly be Santa Claus. Donned in his Santa suit, Harry starts doing his rounds on the van that he decorated with a sleigh picture, and that he believes to have been trained by Santa Claus's reindeer. He first sneaks into his brother's home and delivers toys for his nephews; then leaves a bagful of dirt at the doorstep of "bad boy" Moss Garcia. Later, Harry drops off toys at the hospital, where he is greeted cheerfully by the staff.
On the street, Harry is taunted by three young men leaving Midnight Mass and, in a fit of rage, he partially blinds one of them with a toy soldier's sword, then murders them all with a hatchet. Later, Harry is welcomed at a neighborhood Christmas party, where people think he is just some harmless Santa impersonator; he dances and cheers everyone up and makes sure the attending children know they will have to be good boys and girls to receive their gifts. He then breaks into Frank's home and murders him in his bed with a Christmas tree decoration, leaving toys behind for his kids.