The six Herdman children - Imogene, Ralph, Claude, Leroy, Ollie, and Gladys - notorious for their rowdy misfit behavior, including cigar smoking, cussing, drinking jug wine, and shoplifting. They have never been disciplined because their father abandoned them when they were babies and their mother is always working multiple shifts to make ends meet. Despite their poor performance, the Herdmans steadily pass through elementary school (since holding any one of them back would mean having two or more of them in the same grade).

They go to Sunday school for the first time after being told that the church offers snacks. The narrator's mother is flabbergasted when they all volunteer for the lead roles in the Christmas pageant: Mary (Imogene), Joseph (Ralph), the Three Wise Men (Claude, Ollie, and Leroy), and the Angel of the Lord (Gladys), the last of whom likens her role to a character from Amazing Comics. Since they've bullied all the usual cast members into remaining silent during the call for volunteers, the director has no choice but to cast them.

Having never heard the Christmas story before, the Herdmans take an uncharacteristic interest, through which the narrator is surprised to find herself, and her parents, thinking more seriously about the story's harsher aspects: e.g., that the innkeeper forced a pregnant woman and her baby to sleep in a barn, and the Holy Family were on the run from King Herod, who wanted the baby Jesus killed.

Everyone in town is expecting the Christmas pageant to be a disaster, but the Herdmans' unconventional performances actually make the whole show much more realistic and moving: instead of walking on and off stage like actors, the Herdmans are a little uncertain about where to go and what to do, as the real-life Holy Family and Wise Men must have been; instead of laying the doll representing Jesus in the manger, Imogene insists on holding it, as if it is really her child; the Wise Men choose to bring the baby Jesus a ham from the Herdmans' own gift basket instead of the "crummy" frankincense and myrrh from the story; the shepherds are sufficiently terrified of Gladys to look authentically awed by her announcement of Jesus's birth; and during the final scene, the narrator looks over from the choir and is dumbstruck to see Imogene weeping softly while hugging the "baby". By common agreement, it is the best Christmas pageant the town has ever had.