A sinister toy company unveils Funzo, the next "Tickle Me Elmo"-style fad to Springfield's Christmas shoppers. The toy is a huge success, in part because it is programmed to destroy other toys.
On an ordinary day, Kent Brockman announces on Channel 6 News that the hole in the ozone layer has landed over Springfield, and advises people to stay inside. Milhouse was outside at the time and takes cover at the Simpsons' house. Bored, Milhouse convinces Bart to dress up as a girl and they jump on his parents' bed. They enjoy this, but when Homer knocks on the door (which is locked), Bart panics and falls onto Homer's bowling ball and breaks one of the bones in his lower back. When Bart is taken to the hospital, Dr. Hibbert informs Homer and Marge that Bart has cracked his coccyx and will have to wear a cast over his butt and use a wheelchair for the time being.
When Bart goes to school the next day, he and Lisa notice the school does not have any ramps for the disabled, which changes when Fat Tony and his construction company, "Valdazzo Brothers Olive Oil", plans to build the ramps. They build too many ramps around the school, which later crumble because they are made of paint, bread sticks, and shellac. Fat Tony informs Principal Skinner that he will have to pay $200,000. In response, Principal Skinner chooses to close Springfield Elementary due to lack of funds. All pleas for help (like Mr. Burns) prove futile until Jim Hope, the president of a company named Kid First Industries, buys the school and privatizes it.
At the school, an all-new staff do no actual teaching and instead teach the children about toy design and marketing, which makes Lisa suspicious when her class is asked to name a new toy that they will sell for Christmas. Lisa of course unlike the other kids wants to do actual school work and is later given detention for doing math problems. Bart visits Lisa writing lines on the blackboard, gloating about how he's the straight A student and she's the troublemaker now. When Bart leaves and turns off the classroom lights, Lisa finds a light shining through the blackboard. Lisa later discovers that they are a toy company that's just using the children for research to make a toy, through the use of hidden cameras, tape recording and clear, two-way blackboards. She brings in her parents and Chief Wiggum to investigate, but they do not believe her because the room used for spying on the children was taken out and replaced.
Later on, the new toy is named Funzo (a name which Lisa ironically suggested in class when she was caught doing math) with traits that the students had suggested during a brainstorming session. Lisa takes Bart to the KFI headquarters until Gary Coleman (as a security guard with questionable mental health) stop them. They visit Jim Hope's office and he gives them a free Funzo. Bart and Lisa like it at home until they discover that Funzo is a toy-killer purposely designed to destroy other company's toys. They spread the word around Springfield, urging the citizens to boycott Funzo, until Homer, on Christmas Eve, burns all the Funzos in Springfield after stealing them at the Springfield Tire Yard. However, Gary Coleman comes again to stop them, until they get into a discussion of Christmas. Afterwards, they invite Coleman to a Christmas dinner at the Simpson house. Mr. Burns then shows up after he was visited by three ghosts that night and deciding to donate money to Springfield Elementary following an epiphany he had that night (in reference to A Christmas Carol) and Moe joined in after being renounced from committing suicide via visions of what life would have been like without him and brings a cooked goose to dinner and tells everyone he "kind of banged up that Jeep in the driveway" (in reference to It's A Wonderful Life). Upon hearing this, Coleman says, "What'chu talkin' 'bout, Moe?" The whole group laughs to which Coleman turns around and says, "What'chu talkin' 'bout, Everyone."