Through a voiceover, Sniffer (voiced by Don Knotts) introduces the five Air Buddies, describes their personalities and recaps how the puppies' father, Air Bud, made the town of Fernfield famous through his love of sport. When their families leave home for a basketball game, the puppies get into trouble with their sitter, Mrs. Niggles, by playing with balls of wool and eating a blueberry pie. This prompts their owners to finally put the puppies up for adoption.
Air Bud's five Golden Retriever puppies known as the Buddies from Washington (U.S. state) are having fun with their new owners before they go to school. The puppies meet up in the park and decide to play hide and seek. Budderball sees an ice cream truck and decides to go in, forcing the others to try and rescue him. However, the Buddies become trapped in a truck heading to Ferntiuktuk, Alaska. Upon arrival, the Buddies meet Shasta, a Siberian Husky puppy whose 11-year-old owner is determined to win the Alaskan sled dog race because of what happened to his father. The puppies decide to help Shasta pursue his dreams as well as get to the air port, located at the finish line. Unfortunately, as Shasta has no parents, this puts the puppies in a predicament as there is nobody to teach them how to become snow dogs. Shasta manages to persuade a legendary dog named Talon, who had taught Shasta's father, into teaching the puppies into becoming his new protégés.
The film begins with Buddha (Field Cate) and his owner Sam (Nolan Gould) star-gazing, when Sam makes a wish to touch the moon. The next day is his school field trip to Vision Enterprises, in which students participate in a special viewing of a test launch of the Vision One spacecraft. However, Sam has to leave Buddha at home to attend, so Buddha secretly escapes to meet up with the other buddies; Rosebud (Liliana Mumy), Budderball (Josh Flitter), B-Dawg (Skyler Gisondo), and Mudbud (Henry Hodges), and invites them to join his own spectatorship of the test launch. In a quick effort, they hide in the back of the school bus as it drives to the launch site of Vision Enterprises. On a tour with Dr. Finkel (Kevin Weisman), students see an automatic outfitter that Sam uses. The dogs, not far behind, come across the machine themselves and use it to equip suits before deciding to view the interior of the Vision 1 outside. At the Vision Enterprises' control center, "Mission Control", Pi (Bill Fagerbakke) confirms the ship is now prepared to launch. The Buddies conveniently place themselves in the seats when they become sealed in. Astro (Ali Hillis), the remote pilot, activates the shuttle, and the Vision 1 propels into the outer atmosphere with the Buddies.
At the North Pole, Santa Claus (George Wendt) and his dog Santa Paws (Tom Bosley) take a look at the magical Christmas Icicle, which is melting because nobody believes in Christmas anymore; if it continues to melt, Christmas will be gone forever.
Santa Claus (Richard Riehle) receives a gift stuffed animal dog when his dear friend, Mr. Hucklebuckle who owned a toy store in New York City, passes away. To help cheer Santa up, they bring the stuffed dog to the magic icicle which turns it into a real puppy, whom Santa names Paws (Zachary Gordon) and tells him that they will be the best of friends for all eternity. Meanwhile, Mr. Hucklebuckle's grandson James and his wife Kate are gifted the toy store and are told by Mr. Stewart (Bill Cobbs) as long as they run it for a Christmas season with a profit then they can transfer a deed to have full ownership. James is a CPA from Los Angeles and plans to sell the store once they have ownership. Kate and James are unable to have children and are sad to face another Christmas without children of their own.
In 1937, Sheriff Jim and others from the town of Fernfield set off to the manor of Warwick the Warlock. Warwick has kidnapped five puppies so he can sacrifice them to the Howlloween Hound, an evil hellhound who can open a portal to ghosts but only if he has the souls of five puppies of the same blood. One of the puppies, Pip, belongs to a young boy named Joseph. As the mob prepares to storm the manor, the hound devours Pip's siblings, but Pip escapes. Warwick chases him and grabs him just as the mob enters. The Warlock manages to escape just as dawn approaches. Thus, when the hound tries to kill Pip he fails and Pip turns to stone and becomes a ghost. Jim and Deputy Tracker surround Warwick; however, he jumps in the mirror and escapes.
The film opens with a pickpocketing monkey named Babi who tells his nephew, Babu how he met the Buddies. The Buddies' great-grandfather, Digger was the partner of an archaeologist, Thomas Howard, who retrieved one half of a dial which would lead to Queen Cleocatra's tomb. He never found the other half and retired. The scene then switches to present Fernfield where Thomas is giving his grandson, Peter a tour of the Egyptian exhibit. The Buddies, Budderball, B-Dawg, Buddha, Mudbud and Rosebud are also at the exhibit. Peter stays behind with his grandfather who gives Mudbud, Digger's bandanna. A British archaeologist, Phillip Wellington along with his cat Ubasti meets Thomas in his office and reveals to have the other half of the dial, and insists on bringing him and Peter along for the ride, but refuses to bring along Mudbud due to certain allergies. Fortunately, Mudbud and the other Buddies stowaway in Phillip's DC-3 Douglas airliner via a box of TNT.
Mrs. Paws has just given birth to four adorable puppies named Hope, Jingle, Charity and Noble. Four months later, the Santa Pups each have their own personalities, Hope is always ready to take action wherever she goes but never takes caution, Jingle loves to sing but can only sing off-key, Charity still needs to learn how to share, and Noble pretends to be the leader of his sisters, and leads his sisters into trouble. Meanwhile, in school, Noble asks Eli and Eddy if they can their own magic crystals, but have to understand the True Meaning of Christmas to earn one. The Santa Pups are then taken on a field trip to the cave of the Great Christmas Icicle, where they learn how magic is used, and how the Christmas Magic in the icicle is used to power the magic crystals. When Mrs. Claus prepares to go to Pineville, Noble comes up with a plan of his own, his plan is to take Eddy's magic crystal collar, and then fly to Pineville to prove that they are ready for their own crystals. Once in Pineville, Noble begins granting the first Christmas wish to a girl named Taylor whom she wishes to skate really well, and then to another girl named Sally who wishes for her two front teeth, but after a furious young boy named Carter wishes for the Christmas spirit to disappear, Noble ends up granting a terrible Christmas wish that then affects all of the people in town. The Santa Pups then meet a new friend Baxter, who his owner Jeb Gibson, is actually a dog catcher, catches the Santa Pups and takes them to the pound. The Santa Pups then explain that if they don't get the crystal back and reverse the wish, Christmas could be in big trouble. The Santa Pups then try to retrieve the crystal with help from Hope, but Hope is not careful on the descent, and accidentally wakes up Brutus, and then explains that his life has been pretty rough due to his owner having lost the Christmas Spirit. The Santa Pups agree to get Santa to take him off the Naughty List. Mrs. Claus, Carter, Sarah, the pups,
In a farm in Fernfield, Bartleby is celebrating his twelfth birthday with his grandpa. Budderball soon discovers an orange toy ring in his food, meaning that they now have all of the five toy rings of Inspiron. His grandpa then gives him a birthday present, issue 1 of the Captain Canine and Kid courageous comic books. Sam, Billy, Alice and Pete then arrive, dressed up as super heroes, with the other Buddies (also dressed up as super heroes) and the birthday party begins with a treasure hunt. As the Buddies hunt for the treasure they discover the area where the real rings of Inspiron crashed in 1985. The rings bond with the puppies and the Buddies wear them. Bartleby reads the comic book to his friends which explains the story of Commander Drex, Captain Megasis, how he turned into a dog on Earth and how the rings ended up on Earth. Rumour has it that the person who made the comic books based them on a real life event.