Howard Langston (Arnold Schwarzenegger) is a hard working employee at a mattress company, and is stuck doing extra work on the day his son, Jamie (Jake Lloyd), is earning a purple belt in karate. Despite his promise to make it, he runs into trouble with a traffic jam and Officer Alexander Hummel (Robert Conrad), a sadistic cop from hell who forces him to do a sobriety test after catching him speeding on the shoulder. Because of all this, he ends up missing the karate class. In order to make it up to Jamie, he promises to get him anything he wants for Christmas. What he wants is the immensely popular "Turbo Man" doll, based on the Saturday-morning live action TV show of the same name. Unfortunately, Howard had promised to buy it earlier in the year and, as is the habit with him, promptly forgotten about it. To add further salt to the wound, his wife, Liz (Rita Wilson), informs him that since the dolls are the must-have gifts of the season, they are virtually impossible to find especially this close to Christmas.
Desperate to not disappoint his family again, Howard sets off on a wild goose chase all over Minneapolis-St.Paul to find the doll. At the first store he gets to, he meets Myron Larabee (Sinbad), a post office worker who son wants one too. It is eventually revealed that this is going to be a "no holds barred" scavenger hunt, with lots of shoving, fighting, arguing, and worse. Throughout Howard's quest, the many stores he hits and the chaos that ensues at each one ultimately results in nothing, and at one point he has another run in with Officer Hummell when he accidentally knocks over his squad motorcycle. During a stopover at the Mall of America, Howard is lured into buying a doll from a con Santa (Jim Belushi), who is the leader of a large counterfeit toy-making operation. Unsurprisingly, he pays $500 for a Spanish speaking doll that falls apart the moment he opens the box. Angered at being ripped off, he accuses the Santas of undermining the values of Christmas and ends up in a brawl with them. The police show up to bust the ring, and Howard manages to get out of trouble by posing as an undercover cop using a toy badge.
Later, Howard arrives at Mickey's Diner and uses their pay phone to call home. Jamie answers, and Howard unintentionally scolds him over Turbo Man when he tries to get him to hand the phone to Liz. In turn, Jamie rebukes Howard for never keeping his promises and hangs up. Liz overhears the conversation and becomes disappointed in Howard. Howard encounters Myron at the diner, and they attempt to patch things up by sharing their woe stories; Myron explains that when he was young, his father was unable to buy him a Johnny Seven OMA action figure on Christmas. Their conversation is interrupted when they hear on the KQRS radio station that the disc jockey is holding a Turbo Man competition, and whoever can name all eight of Santa's reindeer wins it! Resuming their rivalry, they barge into the studio (prompting the freaked-out disc jockey to call the police) and give the correct answer, only to discover that the prize is just a gift certificate. Enraged, Myron threatens the disc jockey with a small package from his mailbag which he claims is a mail bomb, but it turns out to be a fake. The police soon arrive (along with Officer Hummell), and Myron bluffs them into backing off by pulling out a much bigger package and claiming it to be a bomb too (unaware that it actually is one). Officer Hummell inspects it and declares that it is harmless, only for it to explode in his face when he tries to open it.
After returning to the diner to find that his car has been stripped and spray-painted by thieves, Howard decides to give up the search and returns home to explain everything to Liz, only to discover his next door neighbor, Ted (Phil Hartman),(who always seems to be homing in on Liz when he is not around) in his house putting his star on his tree! His blood boiling with anger, Howard exacts revenge by breaking into Ted's house and stealing the Turbo Man doll he bought for his son, Johnny. However, he has a change of heart at the last minute as he could not see himself stealing from a child. Before he has a chance to replace it and escape, he is confronted by Ted's pet reindeer and he unintentionally sets some stuff on fire in the ensuing chaos. This causes him to be caught by Ted and a distraught Liz, who both leave to attend the Holiday Wintertainment Parade with Jamie and Johnny.
Broken, Howard decides to to keep the one promise he can, by making his way to the parade to be with his family. Meanwhile, Ted attempts to make a pass at Liz, only to be hit with a thermos of eggnog after she sees who he really is. Upon arriving at the parade, Howard runs into a bandaged Officer Hummell and accidentally drenches him with hot chocolate. In the ensuing chase, Howard escapes into a preparations room for the parade where he is mistaken for a replacement for the actor who will play Turbo Man on the so-themed float. And best of all, he gets the opportunity to pick a child to present a coveted limited-edition Turbo Man doll! Who else does he pick but Jamie! But before Jamie recognizes him, Myron appears dressed as Turbo Man's archenemy, Dementor (having bound and gagged the real actor), and chases Jamie all around the street, with the crowd thinking that this is part of the act. Howard does his best to keep up, but has little skill in controlling the Turbo Man suit. In the end, he defeats Myron and saves both Jamie and the doll. Jamie is sad that his dad wasn't there to see it...until Howard removes his helmet to reveal his true identity!
Meanwhile, Myron is being hauled off by the police, dismayed by his ultimate failure to retrieve the doll and give it to his son for Christmas. Touched by his words, Jamie gives it to him saying that he no longer needs it since his father is the real Turbo Man! Myron and Howard apologize and become friends, and Howard apologizes to a shocked Officer Hummell for everything. He is declared a hero and is crowd-surfed away.
At home, Christmas Eve is finally spent right, as the star is mounted on the tree, and everyone's happy. Liz is so happy that Howard was willing to do so much to get a present for Jamie, that it has her wondering what he got for her. The shocked expression on his face tells the whole story. Uh oh!