Kris Kringle, a bearded old gent who is the living image of Santa Claus. Serving as a last-minute replacement for the drunken Santa who was to have led Macy's Thanksgiving Parade, Kringle is offered a job as a Macy's toy-department Santa. Supervisor Doris Walker soon begins having second thoughts about hiring Kris: it's bad enough that he is laboring under the delusion that he's the genuine Saint Nick; but when he begins advising customers to shop elsewhere for toys that they can't find at Macy's, he's gone too far! Amazingly, Mr. Macy considers Kris' shopping tips to be an excellent customer-service "gimmick," and insists that the old fellow keep his job. A resident of a Manhattan retirement home, Kris agrees to take a room with lawyer Fred Gailey during the Christmas season. It happens that Payne is sweet on O'Hara, and Kris subliminally hopes he can bring the two together. Kris is also desirous of winning over the divorced O'Hara's little daughter Susan, who in her few years on earth has lost a lot of the Christmas spirit. Complications ensue when  Granville Sawyer, Macy's nasty in-house psychologist, arranges to have Kris locked up in Bellevue as a lunatic. Payne represents Kris at his sanity hearing, rocking the New York judicial system to its foundations by endeavoring to prove in court that Kris is, indeed, the real Santa Claus!

Kris Kringle is indignant to find that the person assigned to play Santa in the annual Macy's Thanksgiving Day Parade is intoxicated. When he complains to the event's director, she persuades Kris to replace him. He does such a fine job that he is hired to be the Santa for Macy's flagship New York City store on 34th Street at Herald Square.

Ignoring instructions to steer parents to goods that Macy's wants to sell, Kris tells one woman shopper to go to another store, Schoenfeld's, for a fire engine for her son. She is so impressed, she tells Julian Shellhammer head of the toy department, that she will become a loyal Macy's customer. Kris later informs another mother that Macy's archrival, Gimbels, has better skates for her daughter.

an attorney and neighbor of Doris, is babysitting her nine-year-old daughter Susan (Wood) and takes her to see Kris. When Doris finds out, she lectures Fred about filling Susan's mind with fantasy. Meanwhile, Susan witnesses Kris talking and singing with a Dutch World War II orphan girl in her native tongue and begins to wonder if perhaps Kris is real. When Doris asks Kris to tell Susan the truth, Kris surprises her by insisting that he really is Santa Claus.

Fearing what he might do next, Doris decides to fire him. However, Kris has generated so much good publicity and customer goodwill for Macy's that a delighted R. H. Macy promises Doris and Shellhammer generous bonuses, making it awkward to discharge the old man. To overcome Doris's misgivings, Shellhammer proposes a compromise: sending Kris to to get a "psychological evaluation". Kris easily passes the test, but antagonizes Sawyer by questioning Sawyer's own psychological health.

The store expands on the marketing concept. Anxious to avoid looking greedy by comparison, Gimbels implements the same referral policy throughout its entire chain, forcing Macy's and other stores to respond in kind. Eventually, Kris accomplishes the impossible: Mr. Macy shakes hands with Mr. Gimbel. Kris then decides to give the extra bonus money away.

Doctor Pierce (James Seay), the doctor at Kris's nursing home, assures Doris and Shellhammer that Kris' apparent delusion is harmless and disagrees with the vindictive Sawyer, who argues that Kris should be placed in a mental hospital. Meanwhile, Fred offers to let Kris stay with him so he can be closer to his workplace. Kris makes a deal with Fred - he will work on Susan's cynicism while Fred does the same with the disillusioned Doris, still bitter over her failed marriage.

Then Kris learns that Sawyer has convinced a young, impressionable employee, Alfred (Alvin Greenman), that he is mentally ill simply because he is generous and kind-hearted (Alfred plays Santa Claus at his neighborhood YMCA). Kris confronts Sawyer and, in a fit of anger, raps him on the head with his cane. Doris and Shellhammer arrive at that point and only see the aftermath; Sawyer exaggerates his injury in order to have Kris confined to Bellevue mental hospital.