The story begins with the delivery of a letter from the Royal Postal Academy to the Drill Serge. It is a letter for Jesper, son of the owner of the Royal Postal Academy. It is a dispatch letter for Jesper and he has been waiting for it for quite some time. The next scene is in his father’s office where a performance report of Jesper is demanded by his father. Drill Serge reads out how Jesper had performed poorly. He failed sorting and filling, failed handling special, and fragile items, and failed carrier pigeon caring. Jesper intentionally failed all of this since his admittance into the academy nine months ago. His father decides to send him off to the very distant island, Smereensburg, where he’ll work as a postman in the island’s postal office. Jesper tries to object but his father says he’ll cut him off from luxury if he fails to achieve anything.
And so, Jesper is sent off to Smereensburg. The Drill Serge tries to talk to the General Postman, saying that Smereensburg is too harsh for Jesper but the latter says Jesper will thank him for it. Jesper does thank him every bit of the way to Smereensburg, but it is more of a lamentation than actual gratitude. Jesper is to send off at least 6,000 letters signed by him at the end of the year in order to pass the test. Jesper meets the boatman, Mogens, who conveys him to the icy, gloomy, and hostile town of Smereensburg. The boatman describes the town as lovely and homely but it is all a lie. Jesper gets to the center of the town, looking for a welcoming ceremony but there’s no one there. The boatman tricks him into ringing a bell and suddenly two families from separate ends storm out of their house and start fighting. The boatman is having the time of his life. The bell is called the battle bell for a feud between the Krums and the Ellingboes.
Jesper rings the bell again and the feud stops. That’s when the combatants notice him and make fun of him as the new postman. Another person rings the bell again and the fighting resumes. Jesper escapes from the chaos and enters a school where Alva resides. The school is now a fish market and the smell is unbearable. Alva took up a job as a teacher in Smereensburg where people don’t send their kids to school. All they do is fight each other. She then turned the school to a fish shop in order to save up and leave for a better place soon enough. The boatman, Mogens, finds Jesper in the school and takes him to the post office. The post office is a broken house filled with hens. The ceiling leaks and there are no silk sheets to protect him from the cold. Jesper fights the urge to run back to his father. He convinces himself that he must be strong unless he would lose all the fortune that awaits him.
Jesper starts looking for letters but finds none in the mail posts. Mogens tells him that the people there don’t send letters to one another and that the only thing they do is fight one another. Jesper is positive that things will change in two weeks so he draws up a milestone chart. Two weeks pass very fast but nothing has changed. Jesper has delivered zero letters. One day, a little kid’s sad drawing lands at his doorstep. He takes it to the kid, who’s from the Krums family, and promises to mail it back if the kid would drop a penny for the stamp. The kid’s father shows up with two hounds that he releases on Jesper. Jesper runs back to the postal office and is about to give up when he spots a lonely house on the far edge of the map. He goes down there and discovers a house full of toys. He runs into Klaus but runs away because of the latter’s physique. In the process of running, he leaves his bag with the kid’s drawing behind.
Klaus picks it up and comes down to the main town to find Jesper. He finds Jesper just as he is about to leave Smereensburg. He makes him deliver a toy frog to the kid in the middle of the night, in the midst of the hounds growling at him. The toy puts a smile on the sad kid’s face and this makes Klaus pleased. The next day, Jesper is swamped with kids holding up letters for Klaus. They are the Krums’ child cousins. They say they were convinced to write a letter to Klaus to get a toy. Jesper gets an idea and goes around convincing other kids to write a letter to Klaus to get a toy. He gathers the children’s letters and heads to Klaus. When he asks, Klaus tells him to go away but Jesper persists saying that his old toys would bring a lot of happiness into the sad children’s lives. He even offers to deliver the toys free of charge. A wind flows around Jesper, convincing Klaus to give in. He agrees to it and tells Jesper they’d deliver the toys by midnight, again.
They deliver the toys and more kids come to drop letters with Jesper. A significant change is also happening with the kids of the rival families. Their kids have started playing together with the toys. This enrages both families. The elders become worried about the small changes happening in the community. They’re worried about the calm that is returning to Smereensburg. They recount the long standing history of hostilities between the Krums and the Ellingboes. They blame Klaus and Jesper for meddling in their affairs. Meanwhile, more kids are bringing letters to Jesper. One day, he notices a Saami girl with the other kids. She cannot speak English so Jesper sends her aside. Some other kids say they want toys but are unable to write a letter. Jesper takes them to Alva to teach them how to write. Alva is still selling fish. She tells the kids off but they refuse to leave. She gives in and demands that they leave after she has taught them what they wanted.
The kids do not leave. She goes after Jesper and warns him to stop whatever he’s doing. She says she’d surely get out of Smereensburg soon but Jesper asks her if teaching wasn’t what she wanted to do in the first place. She realizes that what she dreamed about is finally happening so she returns to the kids. Meanwhile, Jesper hears the kids praise Klaus. They praise Klaus for climbing down chimneys and dropping cookies into their socks when Jesper is the one who actually does all of that. He is a bit annoyed by this. He consoles himself that all he needs to be bothered with is leaving Smereensburg as soon as his postal deliveries are up to six thousand. Meanwhile, Alva dips her hands into her savings to get the kids tools they need to learn with. She tells herself it’s only a little of it she’d use.
Jesper meets up with Klaus and teases him about the kids praising him. They load the cart with toys but it’s too heavy for the horse to pull. Jesper gets an idea to use Reindeers instead of the horse. He has trouble getting them together but Klaus gets them together in one try. The reindeers are faster than the horses so Klaus and Jesper are thrilled by the ride. While receiving letters one day, a child of the Ellingboes talks trash about Klaus and the toys. He says it’s all a scam but Jesper walks up to him and says Klaus sees everything. He tells the boy that Klaus knows who’s been bad and who deserves a toy. He says Klaus only gives toys to kids who have done a good deed. This sparks a change in the kids’ behaviour towards one another. They go out of their way to do good things for one another.
The Krums kids help their injured father and cover the break in the fence. The kids pick up all the sharp objects in the neighborhood and cover up all the violent drawings on the walls. The adults joined them soon and started being good to one another. At school, more and more kids show up for lessons. Alva has also cleared her savings getting materials for the kids. Jesper tells Klaus about this development and the latter says a true act of goodwill sparks another. The heads of the families of the Krums and Ellingboes are still bitter about the change. They call for a temporary truce between themselves and agree to go after the common enemy which is Jesper and Klaus. Meanwhile, there’s trouble in paradise as Jesper has noticed that they’re running out of toys.
He gets worried that he may not meet his target of six thousand letters so he tries to convince Klaus to make more toys. Klaus says he’s done making toys. The Krums and Ellingboes try to ambush them but they manage to get away but lose their cart tires. Jesper tries to talk Klaus into making toys again but he crosses the line and opens a shelf where a carving of Klaus and his wife is. Klaus gets mad and sends Jesper away. Jesper meets the Saami girl, Margu, waiting for him at the post office. He talks to her about his worries and takes her to Alva as he can’t understand a thing she says. With Alva’s help, Jesper figures out what Margu wants. He gets to work making it but he’s not a toy maker. Meanwhile, Klaus gets convinced by the wind to make more toys with Jesper.
He goes over to Jesper’s and they make a sleigh for Margu. They watch her happy reaction when she gets the toy. Klaus tells Jesper about his story with Lydia, his wife. He made all those many toys while he was waiting for kids with Lydia. Then she got sick and died. He thanks Jesper for bringing back that joy of making toys to him and agrees to make more toys. At Alva’s, Jesper learns that she has spent all her savings on filling up the classroom. Jesper asks if she doesn’t want to leave anymore and Alva replies that only a fool would leave Smereensburg now. Margu’s people show up at Klaus’ to help him make toys. The Krums and Ellingboes have discovered Jesper’s true intentions so they write thousands of letters to help him meet his target. They succeed in writing fourteen thousand letters and send them to the Royal Postal Academy.
Then, just when Jesper and Alva have gotten closer, and Klaus is happier to make toys, Jesper’s father shows up to keep his promise to his son. Since the target has been met, it is time for Jesper to return. This infuriates Alva and Klaus. His father takes him to the boat but Jesper convinces him to let him stay back. He returns to Klaus’ just in time to save the toys from the Krums and Ellingboes. In the end, the toys get thrown off a cliff but Jesper discovers that they were fake toys. It was Klaus’ and Alva’s plan. They forgive him after seeing him fight for the toys.
Meanwhile, the son and daughter of the Krums and Ellingboes have fallen in love during the chase after Jesper, uniting the families by marriage. Klaus and Jesper distribute the real toys. After a few years of living in harmony and building a family with Alva, Jesper tells us that Klaus disappeared and only returns every Christmas to distribute toys as Santa Claus. Before he left, their toy operations had spread to several towns and beyond. Jesper is still a postman in Smereensburg and the hostile town now lives in peace, unity and love. The End.