Once upon a Christmas Eve, an orphan baby crawled into Santa's bag of gifts and was taken to the North Pole. Raised by Papa Elf (Bob Newhart), Buddy (Will Ferrell) comes to realise he doesn't fit in with the other elves. Determined to find a place where he belongs, Buddy searches for his real dad - in New York City!

In the Big Apple, Buddy finds out why his dad (James Caan) is on the naughty list! But most importantly, he sees that the world is seriously lacking in Christmas spirit, which causes Santa all kinds of problems! So with the help of a beautiful department store elf (Zooey Deschanel), Buddy tries to teach his dad and the world the true meaning of Christmas spirit and to prove to everyone that Santa (Ed Asner) really exists!