In an unnamed town, the local schoolchildren are enraptured by the snowfall happening the day before Christmas.
Their teacher has hired a magician named Professor Hinkle to entertain the children, but his magic is less than stellar. When attempting to pull his rabbit Hocus-Pocus out of his hat, the magician gets angry and throws it away. It is then that Hocus-Pocus appears, and hops off with the hat, causing Hinkle to give chase.
As soon as the school bell rings, the children head outside to play in the snow. Several boys talk a girl named Karen to help them build a snowman. Once they've completed him, they discuss what to name him. On Karen's suggestion, they go with the name Frosty.
Just then, Hinkle runs outside, chasing his rabbit. As a gust of wind blows the hat away from them, Karen grabs it, and puts it on Frosty's head. This causes him to come to life, proclaiming, "Happy Birthday!" Karen eagerly explains that the hat must be magic, causing Hinkle to take it back, making Frosty inanimate again.
The kids want Hinkle to return the hat, but the magician denies he saw anything magic happen. Secretly, he hopes the magic in the hat will help his own magic act. Hinkle stuffs Hocus-Pocus in the hat, and walks off.
Shortly afterward, Hocus escapes with the hat, and returns with it to the kids. Frosty comes to life, and the kids celebrate his return. However, Frosty soon begins to feel a little strange. Observing a thermometer going up, Frosty fears that he will melt soon. The kids then decide to get him on a train to the North Pole.
Frosty leads the children on a parade through town, causing the heads of many adults to turn. At the train yard, they find that a ticket to the North Pole is too expensive, and sneak Frosty onto a refrigerated boxcar. Frosty invites Karen and Hocus to come along, just as the train pulls away. However, just before the train leaves town, Professor Hinkle sneaks on, still determined to get his hat back.
As the train gets further north, Frosty and Karen eventually depart, with Hinkle trailing them. However, Karen has been getting colder, and Frosty is not sure what to do.