Alfred Kralik (James Stewart) is the head salesman at "Mutuschek's" a small shop in Budapest. Klara Novak (Margaret Sullavan) is hired on by Hugo Matuschek (Frank Morgan), the owner of the store, after agreeing with him in an argument over the objections of Kralik. This sets off an almost constant battle of petty hostility between Kralik and Novak. They both compare their opposite with their secret pen pal, a person they have fallen in love with over the course of their correspondence. Matuschek becomes involved in the argument as well, when he discovers that his wife is having an affair. He believes that Kralik is her lover and takes any excuse to side against Kralik in an argument. As Christmas approaches Kralik's world is on the verge of collapse, can he hold it all together and find his true love?