One December afternoon, a young girl named Karen and her group of friends create a snowman after school. The children suggest names for their creation including Christopher Columbus and Oatmeal but Karen decides to name him "Frosty". They later acquire a top hat discarded by inept magician Professor Hinkle. When Karen places the hat on Frosty's head, the snowman comes to life and exclaims "Happy Birthday!" When Hinkle learns of the magic power his hat actually possesses, he takes its back and departs. However, the professor's pet rabbit Hocus Pocus returns the hat to Frosty. Frosty soon senses the temperature is rising and worries about melting. The children suggest putting him on the next train to the North Pole, where he will never melt, and they all parade into the city on the way to the train station, where Frosty has his confrontation with the traffic cop mentioned in the lyrics. When they cannot afford a train ticket, Frosty, Karen and Hocus stow away aboard a refrigerated train car. Unbeknownst to them, Hinkle has also hitched a ride on the same train, intending to get his hat back. Soon Frosty notices Karen freezing up in the box car so they jump off the train, leaving Hinkle behind.Fearing that Karen cannot survive the cold weather, Frosty asks Hocus who might be able to help them. Hocus suggests (by pantomiming) the President of the United States and the United States Marines, before suggesting Santa Claus. Frosty agrees, and promptly takes credit for the idea himself. The forest animals build a campfire to keep Karen warm until they can locate Santa Claus, but Hinkle again arrives and blows out the fire. Frosty and Karen are again forced to flee, this time with Karen riding on Frosty's back as he slides head-first down a hill. At the bottom of the slope, Karen and Frosty discover a greenhouse filled with poinsettias. Against Karen's advice Frosty steps inside the warm greenhouse, suggesting that he could afford to lose a little weight anyway, but Hinkle again catches up to Frosty and locks him and Karen in the greenhouse. Hocus brings Santa Claus to the greenhouse only to find Karen in tears and Frosty melted on the floor. Santa explains to Karen that Frosty is made from Christmas snow, and that he can never completely melt away. With a gust of cold wind through the open greenhouse door, Frosty is brought back to life. Hinkle again arrives on the scene and demands the return of his hat. He relents only when threatened with being removed from Santa's Christmas list for the rest of his life. Santa states that if Hinkle is truly repentant for his mean attitude and harming Frosty, that he may find a gift in his stocking on Christmas morning, which makes Hinkle run home to write repeatedly his apologies. Santa then takes Karen home and Frosty to the North Pole, but promises that Frosty will be back next winter.
The end credits show all the characters the next Christmas marching through the town square with Frosty in the lead, singing the "Frosty the Snowman" song. Among them is a reformed Professor Hinkle, who is proudly wearing his new top hat. At the end of the parade, Frosty gets back into Santa's waiting sleigh and they return to the North Pole, with Frosty exclaiming, "I'll be back on Christmas Day!"