In the rural farming community of Twobridge, Tennessee, a calf is born on Christmas Eve, a night made for wishes. Charles Baker, the elderly owner of the farm the little calf is born in, is the legal guardian of his mute grandson, Billy (whose mother was Charles' daughter). While taking Billy and his best friend Emily out for a drive, Charles' truck sputters out in front of the Holder Farm, and Bucky and Buster Holder rush out and mock Billy for his muteness; while Emily defends Billy and Charles tries acting as a mediator, Gus Holder (Bucky and Buster's dad) comes out and orders them off his property.
In the city, Billy's Aunt Agnes (the sister of Billy's father), a wealthy and snobbish perfectionist, prepares for her "perfect" Christmas, but realizes that something is missing. Agnes decides that she wants a child, and visits her lawyer, who explains that when Billy's parents died, she had given up all rights to guardianship of her nephew. Agnes demands her lawyer to find a loophole that would make her Billy's guardian. At the farm, Charles reminisces about the night when a misplaced lantern set fire to the barn; Charles managed to save Billy and a few of the animals, but Billy's parents perished in the blaze and a doctor later stated that Billy would never be able to speak again.
Later that evening, Santa arrives and dusts the animals with magic powder. Every year, he does this, where the animals are given the ability to speak on Christmas. After conversing with them, Santa meets the calf and names her Annabelle. Upon meeting Santa, Annabelle becomes fascinated with his reindeer and their ability to fly, and wishes to fly herself. Santa leaves, reminding the animals that their speech ability must be kept secret.
On Christmas morning, Agnes arrives and gives gifts to Billy, which he dislikes. Billy then learns that Santa's gift to him is Annabelle. When Billy sneezes in the barn, he's surprised to hear Annabelle say "bless you," revealing their secret. The animals convince Billy not to reveal the secret, leading to Annabelle's shock of his inability to speak. Before she leaves, Agnes makes it clear to Charles that she wants Billy to live with her.
Later, Billy and Emily play with her new snow sled, which they tie to Annabelle, who pulls it with Emily and Billy on board, but they crash into and destroy Mr. Holder's fence. Holder smugly wonders how Charles is going to pay for the damages to his fence and feed Annabelle. Holder then calls the sheriff. At the barn, Annabelle's mother, Star, recounts the incident involving the fire and how Billy's unable to talk because of it. Annabelle then decides what she wants to do next year when she meets Santa, followed by a dream of her flying throughout the sky.
The next morning, the animals lose their ability to talk, which makes Billy wonder if he imagined the whole thing. The sheriff and the Holders arrive, with Mr. Holder demanding the money for fence repairs. Knowing that Charles doesn't have the money, Holder takes away Annabelle; the sheriff, sympathetic to Billy and Charles, promises that if Charles can get the money to repair the fence within 24 hours then Annabelle will be returned. Billy's devastated as the Holder boys drag away Annabelle. Charles decides to sell a music box that belonged to his daughter, even though it's the only thing he has left of her. The next morning, Charles sells the music box, and the sheriff retrieves Annabelle, who has a joyous reunion with Billy.
Billy, Annabelle and Emily spend the year together as friends. Winter comes again, and the holidays are upon the community. As Billy and Emily head home for Christmas vacation, the Holder boys appear and bully them; when the bullying becomes physical, Annabelle retaliates by knocking the boys into the snow. The boys try to feign innocence, but the sheriff hears the real story from the school bus driver who had witnessed the entire thing and goes to Gus to tell him what happened. Gus is furious about what his sons did and sends them to their room as punishment. The sheriff also calls Gus out on his own attitude, pointing out how it's turned his sons into lying bullies who spread misery to others. He also reveals that Charles sold the music box belonging to Billy's mother to get Annabelle back and ends his speech with how Gus should understand what it's like losing a loved one, as Gus lost his wife years ago. After hearing all of that and thinking it over, Gus feels extremely ashamed of his actions.
In the city, Agnes' lawyer has discovered a loophole that will give Agnes custody of Billy by Christmas Day. Agnes shows up and reveals the loophole that would make her Billy's legal guardian: Agnes will have custody of her nephew until he's able to speak and if Charles interferes, she'll call the police. The animals, overhearing this, push Agnes' car into a pond, delaying her plan until the next day. Charles and Billy are happy that they will at least spend one more Christmas together.
That evening, Santa arrives and once again gives the animals the ability to speak. Annabelle then whispers a wish into Santa's ear and asks him to fulfill it. On Christmas morning, Billy opens a box from Santa, but when he turns it upside down after seemingly seeing that there's nothing in it, it turns out that it contained the magic dust that Santa used on the animals, giving Billy the ability to speak again. Now that Billy's no longer mute, he explains to his aunt that he'd rather continue living with his grandfather, ultimately nullifying her plans. Billy goes to see Annabelle and is shocked to discover that she can only moo now. Star explains to Billy that Annabelle permanently gave up her voice so he could regain his. When Billy points out Annabelle's desire to fly, Star claims that hearing Billy speak again was Annabelle's true wish.
Mr. Holder eventually comes by to Charles's farm to apologize for his poor treatment of him and gives him a Christmas present: the music box that he'd sold off previously. Gus explains that after the sheriff told him of what Charles did to pay for the damages to the fence and get Annabelle back for Billy, he felt so ashamed about it that he went and bought the music box to give it back to Charles. Later on, Agnes meets Gus and his sons, setting them on the road to becoming a family.
Years later, Billy and Emily are grown up and married, having taken over the farm after Charles' passing. Annabelle, now an old cow, is nearing the end of her life. On Christmas Eve night, Billy discovers Annabelle wandering outside in the snow and goes after her. Annabelle is ready to die and collapses from exhaustion but then Santa arrives and grants Billy's wish for Annabelle to become a reindeer. Annabelle is transformed into a youthful reindeer and regains the ability to speak, and flies off with Santa and his other reindeer. Billy looks on happily, wishing his friend a Merry Christmas.
