Sylvester awakes on Christmas morning to find a present for him. To his disappointment, it is merely a rubber mouse. He hears his hated rival Tweety Bird singing Jingle Bells in his cage, which has been gift wrapped and addressed to Granny. Just before she enters the room, he switches the cage's tag so that it's addressed "To Kitty" instead. Granny innocently gives the cage to Sylvester and opens the box with the rubber mouse.
Believing there has been an innocent mix-up, she goes to give Sylvester the mouse and correct the mistake. Upon seeing a satisfied Sylvester hiccup Tweety's feathers, Granny realizes what has occurred and angrily forces Sylvester to regurgitate Tweety. After giving the wayward cat a scolding, Granny insists that Sylvester kiss Tweety under a sprig of mistletoe. Sylvester eats Tweety Bird again instead, and is once again scolded and forced to spit him out.
Granny places Tweety's cage up high where Sylvester shouldn't be able to reach him. Undaunted, the ever-resourceful feline retrieves a ladder, climbs up to Tweety's cage, and opens it with the intent to eat him. Tweety Bird manages to convince Sylvester that a huge present waiting under the Christmas tree is for Sylvester. Sylvester abandons Tweety in his greed, and opens the present with relish. It turns out to be Hector the Bulldog, who promptly ate Sylvester. Granny arrives and forced the dog to spit out Sylvester, and then throws the dog out of her house.
Sylvester attempts to get to Tweety by using a toy steam crane. Instead, he accidentally catches an angry Granny, who bashes Sylvester with a broom.
The feline retreats to the second floor of the house and attempts to saw a hole in the floor so as to be able to descend upon Tweety from above. Tweety replaces himself in the cage with a stick of lit dynamite, which goes off just as Sylvester pulls the cage up to his level. Sylvester then puts the wrecked cage back and stumbles down the stairs, blackened and torn up from the explosion.
His next attempt a Western-style showdown with Tweety; himself playing the part of Geronimo, with Tweety playing Hopalong Cassidy. Sylvester wins, but before he can consume his prize, Granny shoots a plunger over his mouth, and declares, "You didn't count on Pocahontas, did you, Geronimo?"
While Tweety plays on his new train set, Sylvester tries one last time to catch him. He takes some spare train tracks, sets them up to point towards his open mouth, and the puts the train in reverse. The train goes over the new tracks, and towards Sylvester who then devours Tweety, only to be devoured himself by Hector the Bulldog who has somehow gotten back in the house. Granny whacks the dog until he coughs up Sylvester, and then does the same to Sylvester until he coughs up Tweety. Granny announces she's had enough, and that she'll show Sylvester and the dog there will be peace in the house once and for all.
The cartoon ends with Granny and Tweety singing a variation of the Christmas carol "Hark The Herald Angels Sing". On Tweety's right and left are Sylvester and the dog with stamps over their mouths.
The ABC airing of this cartoon edited out the shot of Sylvester staggering down the stairs after getting blown up by the dynamite stick that Tweety substituted for himself in the cage. Also cut was the part during the "Hopalong Cassidy" sequence where Sylvester gets shot by Tweety's toy gun and falls down the Christmas tree (with an abrupt cut from traveling up the tree to Tweety being chased by Sylvester).
Cartoon Network, Boomerang and The WB left the "dynamite in the cage" sequence intact, but edited out the entire Hopalong Cassidy sequence from fade in to fade out (because of the American Indian stereotyping and gunfire), fading out into the train sequence instead. It should be noted that, despite being cut from the cartoon proper, the clip show cartoon Tweet Dreams was shown on Cartoon Network and The WB with the offending sequence uncensored and Boomerang currently airs the short uncensored as well.