Scrooge, the nephews, Doofus, and Duckworth are intimidated by a cloud that generates their worst fears, conjured by Magica.

ALF and the Tanners prepare to spend Christmas in a cabin. When the owner comes to visit them, ALF accidently jumps into his trunk and he is taken to a hospital and given away as a Christmas gift to a little girl.

ALF tries to escape from the hospital but ends up stuck in an elevator with a woman in labor. After helping the woman to give birth, ALF pretends to be a toy and the cabin owner puts him back in the trunk and they drive away. When the cabin owner is about to jump off a bridge, ALF disguises himself as Santa and convinces the cabin owner to drive back to the cabin, where ALF is reunited with the Tanners.