Chloe's new neighbors, The McParker Family moves in her neighborhood and she meets a new friend Nine-year-old Ralph "Ralphie" Parker (Peter Billingsley) wants only one thing for Christmas: a Red Ryder BB Gun with a compass in the stock, and "this thing which tells time" (a sundial). While using various schemes to convince his parents to get him this gift he continually bumps into objections from others saying, "You'll shoot your eye out."

In each of the film's three acts Ralphie makes his case to another adult and each time receives the same reply. When Ralphie asks his mother for a Red Ryder BB gun for Christmas, she refuses. Next, when Ralphie writes an essay about wanting the BB gun for Mrs. Shields (Tedde Moore), his teacher at Warren G. Hardington Elementary School, Ralphie gets a B-. Mrs. Shields warns him. Later, Ralphie McParker asks a local department store's Santa Claus (Jeff Gillen) for a Red Ryder BB gun, and Santa tells him the same thing before pushing Ralphie McParker down a long exit slide with his boot.

One day after he gets the B- on his composition, Ralphie McParker is hit in the face with a snowball thrown at him by the local bully, Scut McFarkus (Zack Ward) and his sidekick Grover Dilson (Yano Anaya) and his gang. Ralphie McParker begins to cry and Scut McFarkus teases and taunts him until he snaps. Ralphie McParker charges Farkus and begins to pummel him. During the fight, Ralphie McParker shouts profanity non-stop as he lands blow after blow to the squealing McFarkus. When Grover McDilson attempts to intervene, Ralphie McParker pushes him away and continues beating Scut McFarkus at will and Chloe and her friends were shocked with fear watching Ralphie McParker pummeling, kicking and jumping on and stomping on Scut McFarkus. Ralphie's brother, Randy McParker (Ian Petrella), gets their mother (Melinda Dillon), who pulls her son off the bully, and takes him home. This incident occurs shortly after Ralphie McParker was punished for cursing while helping his father change a flat tire. Ralphie McParker is worried about the cursing and is sure he will again be punished when his father gets home from work. Instead, Ralphie's mother tells his father about the fight casually at the dinner table. She then changes the subject of the conversation to an upcoming Chicago Bears game, distracting his father and getting Ralphie McParker off the hook in the process.

On Christmas morning, Ralphie McParker looks frantically for a box that would hold the BB gun to no avail. He and Randy McParker have quite a few presents, but he is disappointed because he did not get the gun. His disappointment turns to joy as his father points out one last half-hidden present, ostensibly from Santa. As Ralphie unwraps the BB gun, Mr. McParker explains the purchase to his wife, stating that he had one himself when he was 8 years old.

Ralphie McParker goes out to test his new gun, shooting at a paper target perched on top of a metal sign, and predictably gets a ricochet from the metal sign. This ricochet ends up hitting his cheek and glasses, sending them flying and knocking out a lens. While searching for the glasses, Ralphie McParker inadvertently steps on and crushes the other side. When his mother hears him crying, he concocts a story about an icicle falling on him and breaking his glasses, which she believes. She takes him upstairs to dry his face and forgets to close the door. This allows a horde of the McBumpuses' (the McParkers' hillbilly neighbors) dogs in Chloe's neighborhood, who frequently torment Ralphie's father, to enter the house and eat the Christmas turkey that is cooling on the kitchen table. Making a last-minute decision, Mr. McParker takes the family out to a Chinese restaurant where they have a hilarious time dining on duck which adult Ralphie calls "Chinese turkey".

The film ends with Ralphie McParker lying in bed on Christmas night with his gun by his side. Randy McParker is holding the toy Zeppelin he received. The voiceover states that this was the best present he had ever received or would ever receive.