Alvin feels bad about Tommy's illness, so much that during the recording session, he can't sing in tune with the others.
As Simon and Theodore are unable to tell him the truth, Dave mistakes Alvin's actions for greed, and sends him to his room.
This leads to a dream sequence involving Clyde Crashcup, who says that he has invented Christmas (which is now February 12) and Santa (Abraham Lincoln in a sleigh consisting of a hollowed-out pumpkin pulled by four elephants).
On Christmas Eve, two hours before the concert, Simon and Theodore give Alvin the money they have saved up, and wish him luck on buying the harmonica.
At the end, Santa Claus flies over the city (as the Chipmunks sing "We Wish You a Merry Christmas" in the background), before returning to the North Pole, where he is greeted by his wife - who is none other than the same old woman who bought Alvin the harmonica.
In addition, the DVD contains two episodes from the 1983–1991 television show Alvin and the Chipmunks ("Dave's Wonderful Life" and "Merry Christmas, Mr. Carroll").