It's Christmas Eve in 1840 at the Stahlbaum house in rural Germany. As the family prepares for its annual Christmas party, Clara anxiously waits for the guests to arrive. The party becomes festive with dancing and celebration upon their arrival, but the children still await the entrance of Clara´s godfather, Herr Drosselmeyer. Drosselmeyer is an eccentric, yet kindhearted man, and he is a toymaker rumored to have magical powers. When he finally arrives, he brings with her several large, strange packages. Everyone wonders what is inside them, when suddenly, out step four wooden dolls. Much to the delight of the party guests, Drosselmeyer makes the wooden dolls dance. Drosselmeyer gives all of the Stahlbaum children special gifts, but he gives Clara the best gift of all, a beautiful Nutcracker doll. Clara adores her gift, and Fritz soon grows jealous, snatching the Nutcracker from Clara. Fritz and and his cousins argue over the doll, and Fritz pulls on it and breaks it. Clara is heartbroken, and the parents reprimand the children, announcing that it is time for the party to end. The guests depart and Clara and her family go off to bed.
While the rest of the family sleeps, Clara sneaks downstairs to check on her Nutcracker one last time and falls asleep under the Christmas tree with the Nutcracker in her arms. While Clara sleeps, Drosselmeyer casts a magical spell over the room. At the stroke of midnight Clara wakes to a frightening scene: the house, the tree and the toys seem to be getting larger, and large, fearsome mice, led by the malevolent Rat Queen, begin to circle the room. Clara watches in amazement as her brothers´ toy soldiers and her Nutcracker come to life to battle the mice. The Rat Queen traps the Nutcracker, and the Nutcracker cannot overcome her incredible strength. Clara makes a desperate move to save her Nutcracker from defeat and hits the Rat Queen on the head with a present from under the tree. The Nutcracker is then able to conquer the stunned Rat Queen and he and his army claim victory. The army of mice quickly carries away its Queen and the Nutcracker is transformed into a young prince who befriends Clara. Out of gratitude for saving his life, the Prince invites Clara on an adventure to his homeland, the Land of Sweets. As they travel in a magical sleigh, the Prince and Clara are led through a mesmerizing forest by the Forest Muse and Forest Prince and into a spellbinding snowstorm conjured by the breathtaking Snow Queen.
Spritely fairies in waiting prepare the Candy Castle for the arrival of the Sugar Plum Fairy, who reigns over the Land of Sweets. She soon enters and, bearing her magic wand, sweetly dances with the little fairies. Clara and the Prince come upon the gathering, and are warmly greeted. The King of Sweets and the Sugar Plum Fairy welcome them to the Land of the Sweets and invite the Prince to tell his tale. He describes the battle and tells of how Clara saved his life. In their honor, and out of gratitude to Clara for saving her Prince´s life, the Sugar Plum Fairy takes them inside the Candy Castle and throws a lavish festival. She quickly summons her staff of patissieres, who also greet the royal pair with acclaim, and offer to them all of the Kingdom´s delicacies.
Smooth, bold coffee moves like rising steam to a mesmerizing Arabian song. A merry marzipan merliton accompanied by candy canes from the Christmas tree dance to a tune made especially for Clara, and thick, creamy hot chocolate dances to a Spanish fandango. Russian poshka pastries follow, leaping and dancing to an invigorating Russian trepak. To Clara's enjoyment there is still more to be seen, as Mandarin tea dances to an exotic Asian flute chorus and Crème brûlée enlivens the court with an animated French Can-Can. Finally, Sweet Ginger glides onto the Sugar Plum Fairy's court, as her gingerbread creations come dancing out of the gingerbread house. The celebration concludes when the head chef calls the sweets together and they bid Clara farewell.
As the patisserie departs behind her creations, the Land of Sweets continues its farewell as the kingdom´s loveliest and sweetest flowers enter to the tune of a harp, dancing to what Clara believes is the most beautiful waltz she has ever heard. Clara watches with amazement as the flowers dance in beautiful patterns as a single Dewdrop fairy floats above them. The end of this dance is followed by a hypnotic silence, and Clara is sad that her time in the Land of Sweets has come to an end. Clara confides that she wishes the adventure would never end, and the Sugar Plum Fairy she tells her that it won't, for those who have an eye to see it. The Sugar Plum Fairy and her father, the King of Sweets, dance a Pas de Deux, bidding Clara a final farewell, and the Nutcracker Prince returns Clara to the magical sleigh for her journey home.