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Live-action filmmaking mixes with imaginative animation in director Michael Landon Jr's feature adaptation of author Margery Williams' beloved children's book. Toby, an energetic child with a vivid imagination lives with his father, a successful businessman who shuts down emotionally following the death of Toby's mother. When Toby is sent to spend the Christmas holidays with his loving but stern grandmother, he wanders through the lonely house until he eventually discovers the 'magic attic' that was once his father's childhood playroom. There, Toby is surprised to find that his mother left him a stuffed velveteen rabbit - her final gift to her beloved son. Hugging the rabbit close as he starts to cry, the grieving boy watches in wonder as his tears magically bring the toy to life. Before long, Toby is frolicking in the enchanted attic with a whole new group of friends, including the impetuous Horse (voiced by Tom Skerritt) and the wise but skittish Swan (voice of Ellen Burstyn).
When Toby falls seriously ill, can the courageous Rabbit help him to win over his grandmother and make a full recovery? Will Toby's father return in time for Christmas? Can the power of a young child's love grant Rabbit his one great wish?