The film is set in the city of Hammond, Indiana. Nine-year-old Ralphie Parker wants only one thing for Christmas: "an official Red Ryder carbine-action 200-shot range model air rifle with a compass in the stock, and this thing which tells time." Between run-ins with his younger brother Randy and having to handle school bully Scut Farkus, and his "toadie" Grover Dill, Ralphie does not know how he will ever survive long enough to get the BB gun for Christmas.

The plot revolves around Ralphie's overcoming a seemingly insurmountable obstacle to his owning the precious Red Ryder BB gun: his mother's fear that he will shoot his eye out. In each of the film's three acts Ralphie makes his case to another adult and each time he is told the same thing. When Ralphie asks his mother for a Red Ryder BB gun for Christmas, she says, "No, you'll shoot your eye out." Next, when Ralphie writes an essay about wanting the BB gun for Miss Shields, his teacher at Warren G. Harding Elementary School, Ralphie gets a C+, and Miss Shields writes, "P.S. You'll shoot your eye out," on it. Finally, Ralphie asks an obnoxious department store Santa Claus for a Red Ryder BB gun, and Santa responds, "You'll shoot your eye out, kid. Merry Christmas! Ho, ho, ho!" before pushing Ralphie down a long slide with his boot.

One day after he gets the C+ on his composition, Ralphie is struck in the face with a snowball thrown at him by the bully Scut Farkus, who then begins to tease and taunt Ralphie. Ralphie finally reaches his breaking point and then charges at Farkus knocking him down and, after knocking down Grover Dill, who tries to intervene for his pal, proceeds to beat Scut's face bloody. During the fight, Ralphie begins to swear non-stop as he lands blow after blow to the squealing Farkus. Ralphie's mother shows up, pulls her son off the bully, and takes him home. This part of the film occurs shortly after a scene in which Ralphie gets into trouble for swearing while helping his father fix a flat tire. Ralphie is worried about the swearing and is sure he will be in big trouble when his father gets home from work. Instead, Ralphie's mother tells his father about the fight casually at the dinner table. She then changes the subject of the conversation to an upcoming Chicago Bears game, distracting his father and getting Ralphie off the hook in the process.

On Christmas morning, Ralphie looks frantically for a box that would hold the BB gun to no avail. He and his brother have quite a few presents, but he is disappointed because he did not get the gun. His disappointment turns to joy as his father points out one last half-hidden present, ostensibly from Santa. As Ralphie unwraps the BB gun, Mr. Parker explains the purchase to his none-too-thrilled wife, stating that he had one himself when he was 8 years old.

Ralphie goes out to test his new gun, shooting at a paper target perched on top of a metal sign, and predictably gets a ricochet from the metal sign. This ricochet ends up hitting just below his eye, which causes him to flinch and lose his glasses. While searching for the glasses, Ralphie ends up stepping on them, breaking them. However, he concocts a story for his mother about an icicle falling on him and breaking his glasses, which she believes. Suddenly, a horde of the next door neighbor's dogs, which frequently bother Ralphie's father, manages to get into the house, trash the kitchen and eat the turkey that was prepared for the holiday feast. Making a last-minute decision, Mr. Parker takes the family out to a Chinese restaurant where they have a hilarious time dining on what the narrator calls "Chinese Turkey".

At the end of the story, we see Ralphie lying in bed on Christmas night with his gun by his side. Randy is holding the toy Zeppelin he received. The voiceover states that this was the best present he received or would ever receive.

Several subplots are incorporated into the body of the film, based on other separate short stories by Shepherd. The most notable involves the Old Man's (Ralphie's father's) winning a "major award." He entered a newspaper trivia contest which asked for the name of The Lone Ranger's nephew's horse (thanks to his wife, who supplied the answer: Victor). A large crate arrived, and inside was a lamp shaped like a woman's leg wearing a fishnet stocking, much to Mrs. Parker's displeasure. The "battle of the lamp" escalates until Mrs. Parker breaks the lamp, infuriating the Old Man. The leg was the logo of the contest's sponsor, the Nehi bottling company (the details of the contest were not necessarily made clear in the film).

Other vignettes include:

In the DVD commentary, director Bob Clark mentions that Jack Nicholson was considered for the role of the Old Man; Clark expresses gratitude that he ended up with Darren McGavin instead, who also appeared in several other Clark films. He cast Melinda Dillon on the basis of her similar role in Close Encounters of the Third Kind. Peter Billingsley was already a minor star from co-hosting the TV series Real People; Clark initially wanted him for the role of Ralphie, but decided he was "too obvious" a choice and auditioned many other young actors before realizing that Billingsley was the right one after all. Ian Petrella was cast immediately before filming began. Tedde Moore had previously appeared in Clark's film Murder by Decree, and was the only onscreen character from A Christmas Story who was played by the same actor in the sequel, My Summer Story. Jeff Gillen was an old friend of Clark's who had been in one of his earliest films.

The film was written by Jean Shepherd, Leigh Brown and Bob Clark. Shepherd provides the movie's narration from the perspective of an adult Ralphie, a narrative style later used in the dramedy The Wonder Years. Both Shepherd and Clark have cameo appearances in the film; Shepherd plays the man who directed Ralphie and Randy to the back of the Santa line and Clark plays Swede, the neighbor the Old Man was talking to outside during the Leg Lamp scene.