Willie T. Stokes and Marcus are professional heistmen, that take on the Santa Claus routine for the children at a different shopping mall every year as a front for the opportunity to disable the mall security system, clean out the safe, and then flee on Christmas Eve. Willie is an alcoholic, a sex addict and is getting gradually unable to perform the Santa routine much to Marcus' dismay. This year, Willie and Marcus are hired at a mall in Phoenix, Arizona and Willie's vulgar remarks shock the prudish mall manager Bob Chipeska who brings Willie to the attention of security chief Gin Slagel. At a bar, Willie initiates a passionate love affair by charming bartender Sue, who has a Santa fetish.
During his shift as Santa, Willie is visited by Thurman, an exceedingly naive, overweight boy, who believes Willie is actually Santa and is the target of taunts from a skateboarding gang. When Willie is in the parking lot, he is attacked by a man (Ajay Naidu) who watched him in the bar insisting he is not gay; Thurman believing Santa needs his assistance intervenes, and the man not wanting to expose the kid to adult matters, leaves.
Willie gives Thurman a ride home, answering Thurman's endless questions, and walks into the boy's affluent house living with just his very senile grandmother. Thurman reveals that his mother passed away, and his father is away "exploring mountains" (when he is actually in jail for embezzlement). As Thurman has no suspicion that Willie is not Santa, makes no resistance when Willie breaks into the house safe and takes his father's BMW.
When Bob overhears Willie having anal sex with a woman in a mall dressing room, informing Gin sets him investigating. When Willie goes to his motel room and sees someone ransacking his room, he inquires a bystanding prostitute as to who is in his room and she suggests a cop. Willie then takes advantage of Thurman's naivety and takes residence in his house enduring Thurman's relentless barrage of questions and breaking down in verbal abuse to a never offended Thurman.
Marcus berates Willie for taking advantage of a kid, and states his disapproval of Willie's "serial fornicating" and endless drinking. Thurman visits Willie during his shift as Santa after receiving a wedgie from his bullies and changes his request of a pink stuffed elephant, not a purple one. After seeing Thurman hurt himself by accidentally cutting his hand, Willie grows fonder towards him, showing him how to defend himself against bullies. Later, while Willie gives Thurman a letter, telling him to give it to the police to explain what will really happen on Christmas Eve at the mall, he notices Thurman has a black eye from the kids who bully him. As a result, Willie attacks the bullies to get them to leave Thurman alone.
Whilst Willie and Sue are fooling around, Thurman interrupts in order to give Willie his present a wooden pickle he made himself.
Gin's investigation of Willie includes visiting Thurman's imprisoned father. Gin reveals his figuring out of the con scheme to the two with blackmailing them for a half cut to keep silence. When Willie is home with Thurman, Marcus and his wife Lois murder Gin as a way of keeping all the money for themselves.
After hearing Thurman sadly insult himself, Willie sternly tells him that he's not really Santa Claus, and that Santa does not exist. Thurman reveals that he's always known there is no Santa but thought that Willie would like to give him a present anyway because they were friends. On Christmas Eve, Willie, Marcus and Lois break into the mall as planned. It takes Willie longer than usual to crack open the safe; Marcus notices this and after successfully opening it, Marcus reveals to Willie that he has become too unreliable and was planning on killing him.
Before Marcus can take his shot, a police squad appears and starts shooting at all three of them. Willie makes an escape with a pink stuffed elephant as Thurman's Christmas present. He escapes and frantically drives back to Thurman's house with a convoy of police in hot pursuit. However, before he can make it to the front door, the police shoot him.
The epilogue is told through a letter that Willie sent to Thurman. It explains how he's going to be out of hospital soon, and will work as a police sensitivity counselor as Thurman gave the police the letter, which proved Willie's innocence. Marcus and Lois are arrested while Sue is granted guardianship over Thurman and his house.