With Christmas only a few weeks away, Chicago resident Clark Griswold (Chevy Chase) decides it is time to get a Christmas tree. He gathers his wife Ellen (Beverly D'Angelo), daughter Audrey (Juliette Lewis) and son Rusty (Johnny Galecki) and drives out to the country where he picks out a huge tree. Realizing too late that they didn't 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 "good 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 city-wide power shortage (forcing the power company to resort to nuclear generators for backup power) and create chaos for Clark's yuppie neighbors, Todd (Nicholas Guest) and Margo (Julia Louis-Dreyfus). While standing on the front lawn admiring the lights, Clark is shocked to see Ellen's cousin Catherine (Miriam Flynn) and her dense but bighearted husband Eddie (Randy Quaid), 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 drove to reach Chicago, as he is broke and has been forced to sell his home. Clark offers to buy gifts for Eddie's kids, so they can still enjoy a wonderful Christmas.
With Christmas approaching quicker than ever, Clark begins to wonder why his boss, Frank Shirley (Brian Doyle-Murray), has not given him his yearly bonus, which he desperately needs to replace an advance payment he has made to install a swimming pool. After a disastrous Christmas Eve dinner, he finally receives an envelope from a company messenger, who had overlooked 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 so Clark can insult him to his face.
Eddie takes the request literally, drives to Frank's mansion, and forcibly brings him back to the house, to Clark's obvious surprise. This doesn't stop him from confronting Frank about the cancellation of the employees' Christmas bonuses. 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 authorities, who both scold him for his decision to scrap the bonuses, and decides to reinstate them (with Clark getting 20% more than the bonus from the previous year). This causes Clark to faint out of shock.
Afterwards, the family head outside, with Rocky and Ruby Sue believing they see Santa Claus in the distance. Clark tells them it's actually the Christmas Star and that he finally realizes what the holiday means to him. But Uncle Lewis (William Hickey) says the light is coming from the sewage treatment plant; reminding Clark of an earlier incident where Eddie had been dumping his sewage into a storm drain. But before he can stop him, Uncle Lewis tosses a match he had used to light his cigar aside, triggering an explosion sending him flying into the family. Lewis' wife Aunt Bethany (Mae Questel), who is incredibly senile, proceeds to sing the "The Star-Spangled Banner" and the whole family and the SWAT officers join in, gazing at Clark's Santa Claus and reindeer set (which was also destroyed in the blast), still burning and flying into the distance. The entire Griswold family, the Shirleys and the SWAT team members then celebrate inside the house, while Clark and Ellen happily share a Christmas kiss. After Ellen goes inside, Clark looks at the sky, happily smiling toward the stars and saying: "I did it."
When does he receive the envelope?
Christmas Eve