The gang is enjoying a winter festival, when a living snowman arrives and chases everyone off. Curious, the gang decides to investigate in a nearby toy factory, which hides a deadly secret. The gang soon finds out they are trapped inside of the toy store, because the snowman is waiting for them outside. They then meet the owner, Fabian Menkle, who explains to them about the store's haunted clock tower and that the Menkle family toy store was cursed a long time ago by the Sinister Snowman. Later, the snowman is able to get inside the factory and tries to chase Shaggy and Scooby. Just when they think they are doomed, the real Santa Claus shows up, and gets the haunted clock tower working again, which had not been working for many centuries. The snowman is melted by the loud clock tower, and is found out to be none other than Fabian Menkle himself, who was trying to rob the toy store of its money. He tried to make his uncle look crazy so he could sell the store and get the money.