PLOTOn Christmas Eve in Victorian London, Benjamin Stahlbaum gives his children Louise, Clara, and Fritz the presents his wife Marie had set aside for them before she died. Clara receives an egg-shaped box which she is unable to unlock, together with a note saying “Everything you need is inside”. The family goes to a Christmas Eve party, hosted by the children’s godfather and skilled engineer Drosselmeyer. Clara asks Drosselmeyer how to unlock her egg. He reveals that he made the egg for Marie when she was younger.
Benjamin scolds her for refusing to dance with him, and they insult each other. Clara finds her string with her name on it, signifying her gift, and follows it into a forest in a parallel world where she sees a key. Before she can grab it, a mouse snatches it and crosses a frozen river. Captain Philip Hoffman, the Nutcracker, leads Clara across the bridge into the Fourth Realm, where they hardly escape the mouse king and Mother Ginger, the regent of the Fourth Realm. Captain Philip brings Clara to the palace, where she meets the regents of each land: the Sugar Plum Fairy of the Land of Sweets; Shiver of the Land of Snowflakes, and Hawthorne of the Land of Flowers. They tell Clara they are at war with the Land of Amusements, which they refer to as “the Fourth Realm”. It is also revealed Marie was the beloved Queen of this magical land and, thus, Clara is the princess.
The Sugar Plum Fairy explains that Marie created this world as a young girl, and that she animated everyone with a machine that can turn toys into real people. Sugar Plum says this machine can be used to defend the three realms against Mother Ginger, but it needs a key matching the one for Clara’s egg. Sneaking into the Fourth Realm, Clara and Philip steal back the key from Mother Ginger (ignoring her warning that Sugar Plum is lying to them), but Clara is disappointed to discover that the egg is only a music box.
Sugar Plum uses the machine to bring toy soldiers to life and orders them to attack the Fourth Realm. She then reveals that she lied about Mother Ginger, who had resisted Sugar Plum’s plan to take over all four realms in revenge for her perceived abandonment by Marie, and that the machine can turn this world’s people back into toys as well. She imprisons Clara, Captain Philip, and the male regents.
Clara opens her egg-shaped music box again and discovers a mirror, illustrating that all she needed was herself. She and the other prisoners escape. One of Mother Ginger’s mice shows Clara into the engine room, and Captain Philip convinces Mother Ginger to help overthrow Sugar Plum. Clara shuts down the machine while fighting off soldiers with Mother Ginger’s aid. Sugar Plum attempts to turn Mother Ginger back into a toy, but Clara tinkers with the machine so it aims back at Sugar Plum when activated, turning her back into a porcelain doll and rendering her entire army lifeless.
Thanked for restoring peace among the Realms and the destruction of Sugar Plum, Clara promises to visit the Realms in the future. After saying goodbye to Philip, she returns to London, where time has hardly passed since she left. She and Benjamin apologize to each other and she finally decides to dance with him. He accepts, and Clara opens her music box. Benjamin reveals that the music was the first song that he and Marie had ever danced to. They dance throughout the night in the ballroom.