The story begins with World War II U.S. Army buddies, Bob Wallace and Phil Davis, on Christmas Eve 1944 somewhere on the Western Front. The troops have gotten hold of a Christmas tree, and Wallace and Davis are putting on a make-shift holiday show for the troops of the 151st Division (White Christmas/Happy Holidays). Major General Henry Waverly arrives for the end of the show and holds a field inspection before being relieved of command of the 151st Division.
After the war in 1954, the pair, now labeled “America’s favorite song-and-dance-team,” appear on The Ed Sullivan Show (Happy Holidays/Let Yourself Go). Wallace and Davis plug their new show Blue Skies set to open on Christmas Eve in Florida. Before leaving their dressing room, Davis tells Wallace about a letter he received from an old army buddy of theirs asking them to go watch his sisters’ act. Davis convinces Wallace he needs to fall in love and that the Haynes sisters could be good for them (Love and the Weather), so Wallace reluctantly agrees to go watch the girls.
They go to the club to audition the sister act (Sisters), only to discover that Judy actually sent Davis the letter. Wallace and Davis have train tickets to go to Florida for their new show that night, while Betty and Judy are booked to leave for Pinetree, Vermont. Davis and Judy dance together at the club and decide to trick Wallace into going to Vermont so all four of them can be together (The Best Things Happen While You’re Dancing).
Wallace and Davis board the same train as the Haynes sisters, and it doesn’t take long for Wallace to figure out he has been played. The four begin to get excited about arriving in Vermont (Snow), but when the train pulls in, things are not exactly as expected.
They discover that the Columbia Inn in Pinetree is run by their former commanding officer, Major General Waverly, and it’s about to go bankrupt because of the lack of snow and, therefore, lack of guests. The General has invested all of his savings, pension and hope into the inn, so the foursome want to help out and bring business back (What Can You Do with a General).
Wallace and Davis bring Blue Skies and their entire Broadway cast to Vermont and add Betty and Judy into the show. Martha, Columbia Inn’s concierge, also gets in on the show after impressing Wallace and Davis with her talent (Let Me Sing and I’m Happy).
That night, the General’s granddaughter, Susan, is upset. She can’t sleep because she discovered her grandfather tried to rejoin the army but was rejected and now feels like he doesn’t belong. Wallace comforts her until she falls asleep (Count Your Blessings) and then shares a romantic moment with Betty.
After hearing about the General’s rejected plans to rejoin the Army, Wallace decides to prove to him that he is not forgotten. He calls his friend and former army cohort, Ralph Sheldrake, at the Ed Sullivan Show to have him send out letters to the men under the command of the General in the war. The letters are part of a “secret plan” to get the men to come to the inn for the holiday and surprise the General. Sheldrake returns Wallace’s call to let him know that the “secret plan” is going great, but Martha answers the phone and confuses the message thinking Sheldrake is a real estate bigwig and that Wallace is going to force the General to sell the inn. After Martha tells Betty about the phone call, Betty confronts Wallace about his intentions but still doesn’t learn the truth (Blue Skies).
A full run-through of the show is taking place in the barn (I Love a Piano) while romantic drama ensues: Judy’s angry at Davis for his flirtatious manner with all the chorus girls, and Betty is packing for New York because of what she thinks Wallace is going to do to the General (Falling Out of Love Can Be Fun). Susan is also desperately trying to create an act to be part of the show but is turned down by Wallace and Davis. Back in the rehearsal hall, nobody can find the Hayes sisters, so Wallace and Davis rehearse their number for them (Sisters Reprise). Susan tells Wallace that Betty has left for New York, and he goes after her immediately.
In New York, Betty is performing at The Regency Room (Love You Didn’t Do Right by Me/How Deep is the Ocean). Wallace brings Sheldrake to watch Betty’s performance and afterwards they explain the “secret plan” to her. Betty agrees to return to Vermont.
Before leaving New York, Wallace makes another appearance on The Ed Sullivan Show to announce one final time that all the men of the 151st Division should go to the General’s inn for Christmas (We’ll Follow the Old Man).
Wallace and Betty return to the inn to find that Judy and Davis have gotten engaged, and Susan is going to have an act in the show (Let Me Sing and I’m Happy Reprise).
On the night of the show, Martha convinces the General that all of his suits have been sent to the cleaners, and General Waverly concludes that he’ll have to appear in his old uniform. The cast is getting ready in the barn when Wallace and Betty confess their love for one another (How Deep Is the Ocean Reprise). When the General enters the barn where the show is to take place, he is greeted by his former division (We’ll Follow the Old Man Reprise). The show is performed without a hitch (Happy Holiday/White Christmas), and snow begins to fall as the foursome celebrate their love (Finale: I’ve Got My Love To Keep Me Warm).