After Mr. Hankey fails to show up on Hanukkah, Kyle Broflovski leads Stan Marsh, Eric Cartman, and Kenny McCormick into the sewers to investigate. When they find him, Kyle questions him, stating that nobody seems to have the Christmas spirit anymore. Mr. Hankey reveals that he hasn't surfaced due to issues with his family: his dissatisfied wife Autumn, and their children Cornwallis, Amber and Simon.
The boys, along with Mr. Hankey's kids, attempt to revive the Christmas spirit by singing carols on the sidewalk, but are totally ignored. While they lament not getting any presents, Cornwallis begins to wonder about his significance in the world as a piece of poo.
While watching a Peanuts Christmas special, where Snoopy is seen where Charlie Brown was naked being hit by Snoopy with a board, the boys get the idea to create a short animation to show the townspeople at the local drive-in. With backing from Mayor McDaniels, worried about South Park's economic state, the boys set about using cut-out animation to create their cartoon.
Meanwhile, Cornwallis, who has sunk further into depression, reveals his feelings to his father, who comforts him by singing "The Circle of Poo", based on, and parodying Disney's '"The Circle Of Life" song. This shows how poo is the lifeblood of the whole planet, and the song even finishes with Mr. Hankey holding Cornwallis over a cliff, like Simba is held over in The Lion King. Rejuvenated, Cornwallis and the others begin preparing the dilapidated drive-in for the screening.
After Cartman destroys a frame of the cartoon, getting angry, fights with them and quits the project, and Kenny is run over by a car, Stan and Kyle proceed with the project themselves, with Stan dubbing Cartman's voice over (taking extra opportunities to poke fun at his weight in the meantime), Kenny being killed off in the cartoon as well, and sending their cut outs to get made in Korea.
Finally the film is ready and the whole town gathers to see it, including Cartman, who joins in getting credit for the movie, and claims he never quit in the first place. Only a few seconds in, though, the film breaks up.
As everyone sits at home, forcing the children of South Park to celebrate a Christmas with no presents, Cornwallis and Mr. Hankey fix the projector and the film restarts playing. Upon seeing the film, the townsfolk finally come to realize that the true spirit of Christmas is commercialism, and rush to the shops for last minute presents.
Finally content, the boys head of to open their presents, Stan and Cartman deciding to be Jewish for eight days of Hanukkah presents and a swarm of rats come in and scavenge the remains, which is exactly what happened in the original "The Spirit of Christmas".