The story follows Jim and Della, a young married couple facing financial difficulties who want to give each other meaningful Christmas gifts. Della sells her long hair to buy a chain for Jim's pocket watch, while Jim sells his pocket watch to buy combs for Della's hair. On Christmas Eve, they exchange their gifts and realize the irony of their sacrifices, but understand their love and selflessness are more valuable than the material possessions. The story ends with a poignant message about the true meaning of giving and the power of love.