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It's Christmas on Sodor and Knapford station is brightly decorated. Percy tells Thomas that Dowager Hatt is talking to the Diesels. Thomas is intrigued and chuffs closer to listen to what's going on. Thomas discovers that Dowager Hatt is going to the Dieselworks to see the Christmas tree. She wants to see the tallest and grandest tree. Thomas interrupts, stating that the Steamworks should have a big tree too. The idea of a competition excites Dowager Hatt, who agrees, and volunteers to be the judge. Later Thomas and Percy are at the Sodor Steamworks where Thomas tells Victor about the competition. All of a sudden, the engines hear 3 loud horns coming from outside - it's Diesel, Den, and Dart! They tell Thomas that they will win the competition, but Thomas knows where he can find good festive trees and he sets off with the 3 Diesels trailing behind.
Soon they arrive at Maithwaite Station. On the platform are two Christmas trees. The Diesels are impressed by the trees, but Thomas isn't. He knows where he can find even better trees! So he heads off to Maron Station with the Diesels close behind. On the platform are two more trees. Once again the Diesels are impressed, but Thomas dismisses them as they are not "grand" enough. Thomas knows that the best place for grand trees is Misty Island, so he hastily sets off with the Diesels in close pursuit. At the Logging Station, the logging locos are surprised to see their new visitors. Thomas asks them to find a grand Christmas tree for the Steamworks and Diesel asks them to find one for the Dieselworks.
Soon the trees have been found and both Thomas and the Diesels agree that they are very grand indeed. Thomas is determined to be the first to arrive back on Sodor to win the competition. He's soon coupled up and racing away with the Diesels very close behind. As Thomas speeds out of the Misty Island Tunnel, he sees a frightening sight - Gordon puffing straight towards them with the express. Thomas judders, making the tree roll out off of the flatbed and onto the rails. Diesel pulls up sharply so that he doesn't roll over Thomas' tree, but the sudden jerk makes his tree roll onto the rails too. Then, with Gordon thundering towards them, Thomas reverses - crushing his tree. Diesel reverses too and does the same to his tree.
Without any trees, Thomas, Diesel, Den, and Dart roll sadly to the Dieselworks where Dowager Hatt is waiting with Mavis and Salty. Dowager Hatt asks where their trees are and Thomas confesses that he's responsible for them being destroyed. Thomas can see that the Diesels are upset and he wants to make amends. Soon Thomas puffs back to Misty Island on his own. He arrives at the Jobi Woods, where the logging locos give him another tree. He hurries back to the Dieselworks where the tree is put on display. Diesel, Den, and Dart are very pleased with their tree. One-by-one, Thomas' friends arrive with decorations and soon the tree is brightly decorated which pleases Dowager Hatt. Thomas and his friends then go on to wish the Diesels "a happy winter holidays". This makes even devious Diesel smile.