On the morning of the Macy's Thanksgiving Day Parade, the man playing Santa Claus is drunk. An old man named Kris Kringle discovers this and indignantly complains to event director Doris Walker. Noticing that Kris resembles Santa Claus, Doris persuades Kris to play Santa in the parade himself. Kris is well received and is subsequently hired to play Santa at Macy's New York City store on 34th Street.
The toy department head, Mr. Shellhammer, instructs Kris to recommend overstocked items to undecided shoppers. Instead, Kris directs a woman to another store to fulfill her son's Christmas request. Impressed, the woman informs Shellhammer that she will become a loyal Macy's customer.
Attorney Fred Gailey, Doris's neighbor, takes Doris's daughter, Susan, to see Santa. After hearing Kris speak Dutch to an orphan girl from the Netherlands, Susan is amazed. Doris, who has raised Susan to not believe in fairy tales, asks Kris to tell Susan "the truth", but Kris insists that he really is Santa Claus.
Worried, Doris decides to fire Kris, but R. H. Macy, the store's owner, promises bonuses to Doris and Shellhammer because of the positive publicity Kris has given the store. To alleviate Doris's misgivings, Shellhammer suggests Granville Sawyer administer a "psychological evaluation". After doing so, Sawyer is convinced Kris has a grandiose delusion and insists for Kris to be fired and put in a mental institution. Meanwhile, Susan shows Kris a magazine photo of her dream house and tells him she wants it for Christmas. Kris promises to do his best.
In the company cafeteria, young employee Alfred tells Kris that Sawyer convinced him that he is unstable simply because he enjoys dressing as Santa Claus. Kris immediately confronts Sawyer, eventually striking him on the head with an umbrella. Sawyer, outraged, brings Kris to Bellevue Hospital. Tricked into cooperating and believing Doris to be in on the deception, Kris deliberately fails his examination and is recommended for permanent commitment. However, Fred persuades Kris not to give up and represents him in court.
At a hearing before Judge Henry X. Harper, District Attorney Thomas Mara gets Kris to assert that he is Santa Claus and rests his case, asking Harper to rule that Santa does not exist. In private, Harper's political adviser, Charlie Halloran, warns him that doing so would be disastrous for his upcoming reelection bid. Harper buys time by hearing further evidence. Fred calls Macy as a witness and gets him to admit that he believes Santa Claus exists. Macy then fires Sawyer. Next, Fred calls Mara's own young son, who testifies that his father told him that Santa is real. Mara concedes the point, but goes on to demand that Fred prove that Kris is "the one and only" Santa Claus on the basis of a competent authority by the following day.
Meanwhile, Susan writes Kris a letter to cheer him up, which Doris also signs. When a New York Post Office mail sorter sees Susan's letter, addressed to Kris at the New York courthouse, he suggests delivering all of the dead letters addressed to Santa Claus to Kris and freeing up storage space. As court resumes, Fred is informed of the mail delivery; he argues that the Post Office, a branch of the U.S. federal government, has acknowledged that Kris is the one and only Santa Claus by delivering the letters. When the judge insists on seeing the letters, postal employees bring multiple heavy bags of letters to Harper's desk. Harper dismisses the case.
Kris invites Fred, Doris and Susan to a Christmas Day celebration at the facility where he resides, the Brooks’ Memorial Home for the Aged. Susan is sad because what she asked for is not under the tree and loses faith in Kris when he admits he was unable to get her the house she wanted. However, after Kris offers Fred and Doris a route home that avoids traffic, Susan sees her dream house with a "For Sale" sign out front; Susan becomes ecstatic and runs through the house. Fred learns that Doris had encouraged Susan to have faith and suggests they get married and purchase the house. Fred and Doris then see a cane in the house that looks like a cane Kris owns. They both begin to ponder whether Kris really is Santa Claus.
