The special is set shortly after the events of Shrek the Third (and presumably before the events of the upcoming Shrek Goes Fourth), as Shrek and Fiona's children are still infants.
Shrek is quietly living in the swamp with his family when the Christmas season arrives. Under Donkey's urging, Shrek reluctantly promises Princess Fiona a special Christmas surprise. Shrek goes to the local bookstore to try to find a present for Fiona, but since he doesn't know what Christmas is all about, the shopkeeper gives Shrek a copy of Christmas For Village Idiots, a step-by-step guide to celebrating the holiday.
Shrek proceeds to follow the book's advice by decorating the house and getting a tree so he can spend a quiet Christmas Eve with his family, but Donkey brings the entire gang to the swamp, ruining Shrek's plans.
As Shrek tries to tell his own version of "A Visit from St. Nicholas (the night before Christmas)"; Gingerbread Man , Donkey, and Puss in Boots interrupt and each tell their own version of a Christmas story. Donkey tells of floats coming to the swamp. At the end, Donkey tells of licking a 50 ft (15 m) tall Santa figure that is made out of waffles, but in reality he accidentally started licking Shrek's leg. Puss tells his version of the story of Santa Claus, but ends up playing with the ball point of his Santa hat. Gingy's story was not happy, though, but horrifying, as he tells about how his girlfriend Suzy got eaten up by Santa Claus. The shock of this destroys all of Shrek's decorations, furniture and the tree. Shrek ends up kicking everyone out of the house in frustration.
After Fiona decides to leave the house also, Shrek feels downhearted that he spoiled Christmas Eve. After being told that Christmas never goes as planned and someone has to cry for everything to turn out fine in the end, he soon apologizes for losing his temper (Donkey also apologizes for his annoying nature) and tells his story, featuring Ogre Claus in there.
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