As Christmas nears, Mitch and Tracy fall in love. Mitch and Hobie let a lost boy stay with them during the holidays, only to discover he's a con artist. C.J. believes a priest has developed romantic feelings for her. Matt suspects that a group of vacationing little people are really Santa's elves.

At Christmas, Mitch tries to reunite Joey with her mother; C.J. worries that a priest is leaving the church for her and Matt investigates whether Santa's elves are really vacationing at Baywatch.