It's snowing in the backyard. Austin enters through his fence door wearing a crown and a mantle and holding a scepter and introduces himself as "Prince Austin". He's not just a prince, he's the ruler of Snowland, where all the teddy bears, dolls and all of the other toys are praised and very happy. He sings, "Everyone's Happy in Snowland"
The backyard transforms into a snowy land and a castle appears. The prince (with a red uniform added to his outfit) rides on his horse across the snowy grounds and kindly greets the toys. He was happy to see the toys happy. He rode his horse into his castle. Later, he walks onto the balcony and gives a kind-hearted speech to all of the toys, which included the day is Christmas Eve. The toys are very happy to hear his speech.
After his speech, as the prince leaves the balcony, he notes to the viewers that Christmas is one of the three holiday celebrations. Hanukkah and Kwanzaa are included. He also stated that each holiday celebrations have candles to light, and he sang "The Living Holiday Lights". He then arrived at the ball room and praised the teddy bear for doing a good job setting up the Christmas tree. The prince then walks to the throne room and sat down on his throne feeling happy about the toys praising him. He then sang "What A Happy Day".
But an hour later, there were screams for help. The prince rushes down to the hall and was shocked to see those two mice (Pablo and Tasha) with an army of mice holding a teddy bear captive. The two mice introduces themselves as the Mouse King and Mouse Queen. Prince Austin tells them that they aren't welcome and that they should release the teddy bear. But the Mouse King and the Mouse Queen says no. The prince then announces that he rules this land and he commands them to leave. But the Mouse King says "not anymore", then tells the Mouse Queen that it is time. They pointed their scepters at the prince. Then they cast a spell on the prince and turned him into a nutcracker. The nutcracker was disgruntled. Then the Mouse King and Mouse Queen says the magic words that creates a whirlwind and sent the nutcracker into spin and launches him away from the castle.
Soon, the nutcracker then lands on a snowy park on a small town. At the park, two siblings Clara (Uniqua) and Fritz (Tyrone) were playing tag with their kitty, Pavlova while their godfather, Drosselmeyer (Andrew) was watching. Soon, Drosselmeyer heard cries for help. He gets off the bench and looked around, then he notices a nutcracker lying in the snow. Drosselmeyer calls to the children. The children rush to him and notices the nutcracker on the ground. The three of them brought the nutcracker up to his feet. Drosselmeyer asked the nutcracker what happened to him. The nutcracker explained about the events that lead to being put under a spell and blown away by the Mouse King and Mouse Queen. Clara asks Drosselmeyer if they can get the nutcracker back home. Of course, Drosselmeyer wasn't hesitant at all. He agreed and explained that they will all go together. And off they went.
A few minutes in, the nutcracker notices a teddy bear crying. The nutcracker came to the teddy bear and asked him what's the matter. The teddy bear explained that the Mouse King and Mouse Queen made new rules. They banned the teddy bear from ever returning to Snowland. Drosselmeyer asks the kids if that's fair. Fritz wasn't sure, but a very caring Clara explained that the rules aren't fair. She explained that the teddy bear had been treated poorly. Drosselmeyer was pleased to hear those words. Clara tells the teddy bear not to worry and that she'll teach the mice a lesson. Drosselmeyer tells the kids and the nutcracker to continue on and that he'll take care of the teddy bear.
Back at Snowland Castle, the Mouse King and Mouse Queen toast with their army. Then, the general rushed in and told the mice monarchs that the nutcracker is coming back. The Mouse King and Mouse Queen are furious. The Mouse King orders his soldiers to attack.
As the nutcracker, Clara and Fritz were walking, they heard noises. The nutcracker notes that it's the army of mice. The army rushes in and tries to grab a hold of the nutcracker. Fritz (afraid of mice) hid in the bushes. But brave Clara stepped in and shooed the mice away by pulling out a mouse trap. Clara tells Fritz to come out.
Then, the nutcracker and the kids found a doll crying near the ice. Clara came over to the doll and asks her why she was crying. The doll says that she was banned by the Mouse King and Mouse Queen. Clara was surprised. She told the doll not to worry. She told the doll to follow our footprints that will lead to Drosselmeyer and the teddy bear. The doll thanked Clara and she headed in the opposite direction that the nutcracker and the kids went.
Back at Snowland castle, the army arrived to tell the Mouse King and the Mouse Queen that the nutcracker wasn't alone and that the kids were helping him. The Mouse King and Mouse Queen were shocked and furious. They decided that instead of attacking the nutcracker and the kids, the army needs to set up booby traps.
Back at the hike, the nutcracker and the kids heard the shouting. Out came the jack-in-the-box. Fritz tells him to take it easy and he asked him if he got banned as well. The jack-in-the-box said yes but explained that wasn't the reason he was shouting. He was trying to warn them that the booby traps have been placed. The nutcracker states that the Mouse King and Mouse Queen are trying to stop the kids from taking him back home. Clara has an idea, their kitty Pavlova can sniff out booby traps.
One by one, the booby traps have been discovered and destroyed and they all sing "Watch Out For Booby Traps". But along the way, they found a wind-up toy car trapped in a net trap. Clara asked if he was banned by the Mouse King and Mouse Queen. The wind-up toy car said yes. The nutcracker told the toy car not to worry and Pavlolva cut down the net trap with his claws. Fritz said that things have gone too far. Clara told Fritz to calm down. The nutcracker then explains they're almost to Snowland.
When they finally arrived, they kindly asks the crowd the let them through. Fritz stepped in and tells the Mouse King and Mouse Queen that the kingdom rightfully belongs to Prince Austin. The general of the mice army tells the Mouse King and the Mouse Queen that the kids rescued the nutcracker. The Mouse King then proclaimed a new rule: "No kids in Snowland". Fritz gasped. Pavlova hissed. The Mouse King then proclaimed a new rule: "No kitties in Snowland". Pavlova mewed sadly. The nutcracker told the Mouse King that he can't do that. But the Mouse Queen told him rules are rules. The toys sigh in disbelief.
But then, "No!" Clara shouted. She told the Mouse King and Mouse Queen that rules can change, especially when they're not fair. She asks all the toys if it's fair that the kids and kitties can't come to Snowland. Everyone shouted, "No!". The Mouse King and Mouse Queen gave a puzzled look. Clara then asks all the toys if it's fair that the teddy bears can't come to Snowland to be with their friends. Everyone shouted, "No!". Clara then asks all the toys if it's fair that the dolls can't come to Snowland. Everyone shouted, "No!". Clara then asks all the toys if it's fair that the jack-in-the-boxes can't come to Snowland. Everyone shouted, "No!". Drosselmeyer then stepped in and told the Mouse King and Mouse Queen that it's not even fair that wind-up toys can't come to Snowland.
Clara told the Mouse King and Mouse Queen that the toys haven't done anything wrong, or been mean or naughty and that they should be treated fairly. She told them that Prince Austin has always been fair and is kind, nice, brave, and graceful to all of those who live in Snowland and that he deserves to be ruler of Snowland. All the toys shout, "Hail Prince Austin!" The Mouse King and Mouse Queen made a shameful look at each other.
One of the toys then demands that the Mouse King and Mouse Queen should go and that a rule should be made: "No mice in Snowland". But the nutcracker declines explaining that it's only fair for everyone to be welcome in Snowland, and told the Mouse King and Mouse Queen that they are smart, but he also told them to learn to get along with others and treat them fairly. The Mouse King said in guilt, "Your highness, please forgive us. We're sorry." The Mouse King and Mouse Queen then declared that because of their cruelty, they decided to give up the throne and step down.
Then, something amazing happened, the nutcracker glowed in a bright light, and surprisingly, the spell was broken. Prince Austin was back to normal. Pavlolva rushes up to the prince and licks him. Prince Austin later walks up to the balcony and announces that peace reigns again. He then walks down to Clara and thanked her for showing the Mouse King and Mouse Queen how wrong they were. He then asks her if she'll be his princess. She said yes. Prince Austin then appoints Fritz as the captain of his soldiers and Drosselmeyer as prime minister.
The next day is Christmas day. They all enjoyed the holiday celebration. They danced in the ballroom, and they skated on a frozen pond, and they all sang the reprise of "Everyone's Happy in Snowland" around the Christmas tree. Then Drosselmeyer's stomach growled, he said that all of the excitement makes him hungry. Prince Austin then invites everyone to his house for gingerbread cookies. They all accept and the castle turns back into the backyard where it was still snowing. They sing the end song and go into Austin's house. Austin opens the previously closed door and shout "What a day!". The end credits start.