The movie is set in 1920s Vienna at Christmas time. Mary (Elle Fanning) lives with her parents (Richard E. Grant and Julia Vysotskaya) and her younger brother Max (Aaron Michael Drozin). She is upset that evening because her parents are going to a party that night, while Mary wants the whole family to be together for Christmas. However she is cheered up by her visiting Uncle Albert (Nathan Lane) who gives both her and Max a beautiful dolls house and a nutcracker doll nicknamed NC, whom Mary immediately takes a liking to.That night, NC (voiced by Shirley Henderson) comes to life in front of Mary and grows to human height. He tells her that he must talk to his friends in the doll house, which is in the sitting room by the Christmas tree. They go downstairs and Mary finds that the sitting room has grown to an enormous size (or they have grown smaller) so that they appear to be the height of toys. In the dolls house Mary meets NCs friends; Gielgud, a gentlemanly chimpanzee; Tinker, a pernickety opera singer and Sticks, a drummer boy. After climbing the Christmas tree, Mary meets the Snow Fairy, who resembles her mother. The Snow Fairy tells Mary that NC is in fact a prince who had his kingdom taken over by the anthropomorphic Rat King ( John Turturro) and his cruel mother, The Rat Queen (Frances de la Tour), who was also the one that turned him into a nutcracker. She manages to turn him back into a boy (Charlie Rowe) temporarily, due to Mary truly believing in the magic that is happening. NC dances with Mary, they then climb to the top of the Christmas tree where he points out his city in the distance. Since NC was turned into a nutcracker, the Rat King has been oppressing his people, and forcing them to work in a number of nightmarish factories where the childrens toys are burnt to form a large black cloud over the city. He does this to block out sunlight, which he is afraid of. Mary suggests that they destroy the factories to scare him away. Unbeknownst to them, two of the Rat Kings spies who have seen them dancing, report back to tell the Rat King that NC is alive and a boy again. The Rat King gets his mother to turn NC back into a nutcracker, then sends his pack of Rat Dogs (robotic Rottweilers with sharp steel teeth) to cut down the Christmas tree. When the tree falls, Mary suddenly wakes up in her own bed and runs downstairs to get NC. Her parents do not believe her when she tells them the events of the night and disapprove of her wild imagination.The next evening, NC comes to life again and tells Mary that he intends to round up an army to fight against the Rat King. Max wakes up, and excited to see NC alive, agrees to join the fight with them. NC goes downstairs ahead of them, to get the rest of the toys but is kidnapped. When Mary and Max go downstairs, they find that NC, Tinker and Sticks are being held captive in the fire place by the Rat King and his minions. After briefly tormenting them, he brings the toys and Max back to the city (Max goes willingly due to the promise of a Rat Bike). After they leave, Mary discovers Gielgud, who escaped capture. They find a portal to the city in the houses attic, and after stealing disguises from a rat, search the city for their friends. With the help from an old accordion player (who resembles Uncle Albert) they find the Rat King and Max in the city centre where even more toys are being taken from children to be burned. Max is horrified by this and asks to be returned home, but the Rat King imprisons him in his castle.Mary attempts to save him but Gielgud stops her from blowing their cover. They manage to sneak into one of the smoke factories where they find Sticks, Tinker and an apparently lifeless NC. Sticks reveals that they had managed to escape from the Rat Kings clutches, but while escaping, NC was recaptured and they do not know what has been done to him. Mary rescues him from being burned and tells him that she loves him, which breaks the curse, bringing him back to life and turning him back into a boy permanently. The factory workers, seeing their prince alive, begin to fight back against the rats while Mary and NC attempt to shut down the factory. The Rat King and Rat Queen see that they will lose the war and decide to escape in a helicopter, kidnapping Mary and bringing her and Max with them. Gielgud and NC manage to board the helicopter and do battle with the Rat King while Max successfully manages to land the aircraft into a pile of toys. The Rat King and Queen escape by returning to their original rat forms and fleeing into the sewers. NC is crowned king and peace is restored in the kingdom as everyone celebrates. The Snow Fairy reappears and tells Mary it is time for her to go back home, though she is reluctant to leave. Before she goes, NC promises that they will meet again. Mary wakes up in her own room where her parents apologise for their earlier criticisms of her and promise to spend more time with her. She goes downstairs to Uncle Albert who introduces her to his new neighbour: a boy her age, who resembles the Nutcracker Prince and asks to be called NC. They soon become good friends, and the movie ends with them ice-skating together.