In the middle of the winter holiday season, Miss Clavel gets called away from the Old House to care for her ailing aunt. Lord Cucuface replaces her with Mr. Grump, who is more of a drill sergeant than headmaster. He serves military rations, orders the girls to stand inspection, discourages window shopping on the morning walk, and worst of all, takes down the holiday decorations and pulls the strings on a puppet show to raise funds for a needy neighbor. But after the girls run away, Mr. Grump has an encounter with Madeline that helps him have a change of heart. Soon the Old House is once again full of holiday spirit – as well as a fabulous party complete with puppet show, starring Madeline and Mr. Grump.