A young girl is transported into a magical world of gingerbread soldiers and an army of mice.
All Clara wants is a key - a one-of-a-kind key that will unlock a box that holds a priceless gift from her late mother. A golden thread, presented to her at godfather Drosselmeyer's annual holiday party, leads her to the coveted key-which promptly disappears into a strange and mysterious parallel world. It's there that Clara encounters a soldier named Phillip, a gang of mice and the regents who preside over three Realms: Land of Snowflakes, Land of Flowers, and Land of Sweets. Clara and Phillip must brave the ominous Fourth Realm, home to the tyrant Mother Ginger, to retrieve Clara's key and hopefully return harmony to the unstable world.
- In London, England one Christmas Eve, Mr. Stahlbaum gives his children Christmas presents to fulfill his wife's dying wish. Clara, the youngest sister, receives a handcrafted egg-shaped box, which, to her dismay, she is unable to unlock. In the package, she discovers a note from her mother that states that the inside of the egg contains all she would ever need.
The Stahlbaum family then heads to a Christmas Eve ball, hosted by the children's godfather, Drosselmeyer. Refusing to dance with her father, Clara scurries from the crowd to ask Drosselmeyer, a skilled engineer, how to unlock her egg. He then reveals to Clara that the egg was a creation of his that he gifted to Clara's mother when she was younger, and that her mother's wish was to bestow the gift to her daughter.
Returning to the ballroom, Clara gets scolded by her father for disobeying him and not dancing with him. Calling him self-absorbed and obsessed with his family's image since his wife's passing, she flees the group when Drosselmeyer announces it being time for the children to receive their gifts. Clara finds her string with her name on it, signifying her gift, and follows it into a parallel world to Christmas Tree Forest, where the key hangs in the center of a tree waiting for her to grab. Nonetheless, before she can grab it, a mouse snatches it. Unable to reach the mouse which crosses a frozen-over lake, Clara approaches Captain Philip Hoffman, who tells her that she is the daughter of Queen Marie Stahlbaum, to cross the bridge he is guarding, which leads to the Fourth Realm. Captain Philip and Clara cross the bridge, but they are unable to obtain the key from the mice.
Captain Philip then guides Clara to the palace, where she meets The Sugar Plum Fairy, regent of the Land of Sweets; Shiver, regent of the Land of Snowflakes; and Hawthorne, regent of the Land of Flowers. Hawthorne then divulges to Clara that they are at war with the the Land of Amusements, which they now refer to as "the Fourth Realm."
Watching a ballet that tells the story of the world's creation, Sugar Plum explains to Clara that her mother created this world as a young girl. She later explains that Marie animated everyone with a machine that can turn toys into humans. Sugar Plum says that she can use this machine to defend the other three realms against Mother Ginger, regent of the Fourth Realm, but it needs a key. Clara investigates the machine and notices that the key hole matches that of the one on her egg: the same key snatched by the mouse. Clara and her soldiers go on a journey toward Mother Ginger and the mice to get the key back and are successful. However, Clara is disappointed upon finding out that the egg is only a music box.
Once Sugar Plum obtains the key, she uses the machine to turn toys into life-size soldiers that obey her every command, including that to attack the Fourth Realm. She also reveals that the machine can turn people into toys as well. Clara suggests that she use the soldiers as defense rather than violence, as it is what her mother would have wanted, but Sugar Plum declares that what her mother would have wanted is irrelevant since she is dead. Infuriated by Clara's resistance, Sugar Plum imprisons Clara, Captain Philip, Shiver, and Hawthorne.
Opening her egg-shaped music box, Clara discovers that the top flips to reveal a mirror, illustrating that all she needed was herself. She and the other prisoners escape, eluding being caught. She and Captain Philip are then greeted by one of Mother Ginger's mice who guides them away from the threat. The mouse shows Clara an entry into the machine's room and guides Captain Philip to Mother Ginger to convince her to help Clara overthrow Sugar Plum.
Clara successfully enters the machine's room and shuts down the machine while fighting off soldiers, causing the palace's water wheels to cease rotating, catching Sugar Plum's attention. Mother Ginger comes to her aid and helps her to fight off the soldiers. Sugar Plum ultimately traps Mother Ginger and attempts to turn her into a toy with the machine. However, while distracted by Mother Ginger, Sugar Plum was unaware that Clara had tinkered with the machine so that it aimed at Sugar Plum. The machine zaps Sugar Plum and turns her into a porcelain doll as punishment for high treason to the realms, and Mother Ginger remains alive.
Thanked for restoring peace among the realms, Clara promises to visit the realms in the future and returns back to London, where time has hardly passed since she left. She then approaches her father and acknowledges how hard everything has been for everyone since Marie's passing while asking him to dance. He accepts, and Clara opens her music box when her father becomes flooded with emotions; as the song that plays was the first song that he and Clara's mother had ever danced to. The two then continue to dance throughout the night.