At the beginning of the story, we see Frosty’s hat escape from a locked chest in an attic, fly out a window, and descend on the picture perfect town of Evergreen. Frosty first reveals himself to Tommy Tinkerton (voiced by Kath Soucie), the son of the town’s impossibly upbeat but no-nonsense mayor, Mr. Tinkerton (voiced by Tom Kenny). Tommy dares not to accept Frosty’s invitation to play outside in the snow, because he’s afraid of disappointing his father. So Frosty instead befriends Tommy’s best friend, Walter Wader, who shocks everyone, especially his very strict mother, by breaking curfew and flying, sledding, and snowball-fighting with Frosty.
Walter’s rule-breaking gets all the kids of Evergreen talking, but it greatly upsets Principal Pankley (voiced by Larry Miller), who is even more adamantly opposed to magic than Mr. Tinkerton. Principal Pankley uses the arrival of Frosty to sow doubts among the townspeople about Mayor Tinkerton’s leadership, and little by little he begins to take over the town.
But once magic is stirred up, it isn’t easily contained. One by one, Frosty wins over the other kids of Evergreen, including Sara Simple (voiced by Tara Strong) (a sharp, independent girl who tells her mom, “I don’t want to be a princess—I want to be an urban planner”); Tommy’s brother, Charlie Tinkerton; and Sonny, Sully, and Simon Sklarew. Frosty befriends each of them through the simple means of believing in them, which inspires them to begin to believe in themselves.
Increasingly desperate to deny the existence of Frosty and keep Evergreen fun-free, Principal Pankley tricks Walter Wader into helping him lure Frosty for some ice-skating fun, then tricks Frosty into venturing onto thin ice. Before Walter can save his friend, Frosty falls through the ice and melts, and Principal Pankley captures Frosty’s hat, which is the key to his magic.
As all of this unfolds, Tommy Tinkerton, who was the first one to whom Frosty appeared, has been sitting on the sidelines, watching his best friend, his brother, and his hoped-for sweetheart experiencing adventure and magic in which he could share. But he has held back, even though he yearns to meet Frosty, out of loyalty to his dad (because he knows his dad would disapprove of him acknowledging the existence of magic).
Everything changes, though, when Tommy finds a secret room beneath the library, in which he discovers a comic book filled with secrets about Frosty. At first, most of the comic book is blank. Each time Tommy checks it again, new panels appear. Over the course of several scenes, Tommy learns that Frosty’s magic is in his hat; that his dad (Mr. Tinkerton) met Frosty when he was a boy, and did believe in magic once upon a time; and that Principal Pankley, a childhood friend of his father’s, took Frosty’s hat and hid it away in an attic (the same attic from which the hat escaped at the beginning of the story), causing young Mr. Tinkerton to lose his faith in magic. The comic book also reveals to Tommy what Principal Pankley has just done (with Walter Wader’s unwitting help) to recapture Frosty.
All this time, Tommy has held back from befriending Frosty out of loyalty to his dad, who has always told Tommy not to believe in magic. But now Tommy sees that his dad once believed in magic, too, but was tricked into losing faith. And Tommy realizes that the most loyal thing he can do is not to hide from magic, but to help his dad rediscover that magic is indeed real.
Tommy explains what’s really going on to Charlie, Sara, Walter, and the Sklarew triplets, and leads a daring rescue of Frosty’s hat in which all the kids help out. A climactic series of scenes follows in which Principal Pankley tries and fails to recapture the hat, then tries to deter the townspeople (including Mr. Tinkerton) from going into the woods to see what all the ruckus and noise are about. But Mr. Tinkerton refuses to be deterred, and Tommy is able to reintroduce his dad to the old friend, who Mr. Tinkerton had long since stopped believing in.
Meanwhile, the other parents are confused and angry: why are their kids out at night? And can this magical snowman they’ve been hearing about be real after all? Principal Pankley tries to stir them up to regain control of the situation, but Walter Wader breaks the spell by throwing a snowball at Principal Pankley. And one by one, the other kids and parents join in, until the town of Evergreen, which had forgotten how to have fun, gives itself over joyously to a “snowball-fighting, horseplaying, lark of a good time.”
A brief epilogue shows us Evergreen transformed—with Mr. Tinkerton doing magic tricks, Charlie Tinkerton playing football, Tommy Tinkerton skateboarding, and Sara Simple reading a book about urban planning.
All along, the story has been narrated (à la “Our Town”) by a warm, wise, seemingly omniscient old man who appears periodically and comments on the events unfolding in Evergreen. In the final scene of the movie, the narrator reveals that he is Tommy Tinkerton, all grown up and now married to Sara Simple; and he has been telling us his own story.