In December 1988 Chicago resident Clark Griswold plans to have a great Christmas with his entire family. He gathers his wife Ellen, daughter Audrey, and son Rusty and drives out to the country to a tree farm. After walking through the snow for hours, Clark finds the largest tree he can. Realizing too late that they did not bring any tools to cut the tree down, they are forced to uproot it instead, before driving home with the tree strapped to the roof of their car.
Soon after, both Clark’s and Ellen’s parents arrive to spend Christmas, but their bickering quickly begins to annoy the family. Clark, however, maintains a positive attitude, determined to have a “fun old-fashioned family Christmas.” He covers the house’s entire exterior with 25,000 twinkle lights, which fail to work at first, as he has accidentally wired them through his garage’s light switch. When they finally come on, they temporarily cause a citywide power shortage and create chaos for Clark’s yuppie neighbors, Todd and Margo. While standing on the front lawn admiring the lights, Clark is shocked to see Ellen’s redneck cousin Catherine and her husband Eddie, as they arrive unannounced with their children, Rocky and Ruby Sue, and their Rottweiler dog, Snots. Eddie later admits that they are living in the RV they arrived in, as he is broke and has been forced to sell his home and acreage. Clark offers to buy gifts for Eddie’s kids so they can still enjoy Christmas. Soon afterward, Clark’s Aunt Bethany and Uncle Lewis arrive as well.
Clark begins to wonder why his boss Frank Shirley has not given him his yearly bonus, which he desperately needs to replace an advance payment he has made to install a swimming pool for the coming summer. After a disastrous Christmas Eve dinner, along with Uncle Lewis accidentally burning down the Christmas tree, he finally receives an envelope from a company messenger, who had failed to deliver it the day before. Instead of the presumed bonus, the envelope contains a free year’s membership for the “Jelly of the Month Club”. This prompts Clark to snap and go into a tirade about Frank, and out of anger, requests that he be delivered to the house, wrapped in a bow, so Clark can insult him to his face.
Eddie takes the request literally, drives to Frank’s mansion, and kidnaps him. Frank admits to have cancelled the Christmas bonuses, and Clark chastises him for it. Meanwhile, Frank’s wife, Helen, calls the police, and a SWAT team storms the Griswold house and holds everyone at gunpoint. Frank decides not to press charges and explains the situation to his wife and the SWAT leader, who scold him for his decision to scrap the bonuses, and he decides to reinstate them (with Clark getting a bonus equal to last year’s amount, plus 20% as compensation).
The family heads outside when Rocky and Ruby Sue believe they see Santa Claus in the distance. Clark tells them it is actually the Christmas Star and that he finally realizes what the holiday means to him. Uncle Lewis says the light is coming from the sewage treatment plant; reminding Clark that Eddie had been dumping his sewage into the nearby storm drain. Before Clark can stop him, Uncle Lewis tosses a match used to light his cigar into the drain, triggering an explosion. The explosion sends a Santa’s sleigh decoration flying into the sky. Aunt Bethany starts singing “The Star-Spangled Banner” and everyone joins in as the flaming decoration flies into the distance. The entire family and the SWAT team members then celebrate inside the house, while Clark and Ellen happily share a Christmas kiss, and Clark stands outside satisfied that he has the Christmas that he always wanted.