Every Who down in Whoville really likes Christmas. However, the Whos dislike the Grinch, a misanthropic green creature who lives in a cave on nearby Mount Crumpit, north of Whoville, because of his mean-spiritedness, especially during the holiday season. Six-year-old Cindy Lou Who believes that everyone is focusing more on gifts and festivities rather than personal relationships. She encounters the Grinch at the post office (while he plays with the mail by switching everything around as well as throwing unpleasant jury duty notices into random mailboxes), where he saves her life after getting stuck in the mail shaft. Cindy starts researching the Grinch and later discovers more of his past.

The Grinch arrived in Whoville as a baby and was adopted by two elderly sisters. In school, the then-timid Grinch was attracted to Martha May Whovier, a girl in his class who reciprocated his feelings. Classmate Augustus MayWho, however, started bullying him, jealous that Martha favored the Grinch over him. That Christmas, he made an angel as a gift for Martha, but accidentally cut his face while trying to shave due to MayWho claiming he had a beard. When MayWho and their other classmates saw his cut face the next day, they (except Martha) teased him, causing him to lose his temper, declare his hatred for Christmas, and flee to Mount Crumpit, where he has resided since.

Cindy nominates the Grinch as the town's "Holiday Cheermeister", outraging MayWho, now mayor. Cindy climbs to Mount Crumpit to invite the Grinch to the celebration, and he eventually accepts, realizing he could potentially encounter Martha there and finally upset MayWho. As Cheermeister, the Grinch participates in several events and begins enjoying himself until MayWho presents him with an electric razor, reminding him of his childhood humiliation. MayWho then publicly proposes to Martha, giving her a gaudy engagement ring and a new car. Enraged, the Grinch berates the Whos' materialism, mocking their belief that Christmas is only about gifts that will ultimately be discarded. He shaves MayWho's head, burns down the tree with a makeshift flamethrower (the Whos, however, have a spare) and goes on a rampage before returning home.

Disgusted with the Whos' Christmas, the Grinch vows to crush their spirit by stealing all of their presents, decorations and food while they are asleep. He disguises himself as Santa Claus and his pet dog Max as a reindeer, then descends into Whoville on a hi-tech sleigh. The first house he enters is Cindy's, and when she catches him stealing their tree, he lies to her to facilitate his escape.