The film opens in Sydney, Australia where Nicholas and his best friend Felix, gazing at the department store window seeing what Santa's workshop looks like. They reside at the orphanage where all the Children were orphans. The bully, Grincroch, picks on Nicholas that Santa doesn't exist as he asks him that he's afraid of heights. But, Nicholas manages to retrieve a toy for the child after climbing up the orphanage fence. Nicholas was pure of heart believing Christmas and Santa. But on Christmas Eve, Nicholas's best friend Felix, gets adopted by his new parents and gives his lucky charm to Nicholas as Felix with his new parents move to America. During Christmas Eve dinner, Little Beatrice gives some chocolate to Nicholas as he introduced himself to her. Nicholas and Little Beatrice sees a shooting star as Beatrice is to be lucky star to have the dream of best Christmas.