The story tells of a young married couple, James, known as Jim, and Della Dillingham. The couple has very little money and lives in a modest apartment. Between them, they have only two possessions that they consider their treasures: Jim's gold pocket watch that belonged to his father and his grandfather, and Della's lustrous, long hair that falls almost to her knees.
It's Christmas Eve, and Della finds herself running out of time to buy Jim a Christmas present. After paying all of the bills, all Della has left is $1.87 to put toward Jim's Christmas present. Desperate to find him the perfect gift, out she goes into the cold December day, looking in shop windows for something she can afford.
She wants to buy Jim a chain for his pocket watch, but they're all out of her price range. Rushing home, Della pulls down her beautiful hair and stands in front of the mirror, admiring it and thinking. After a sudden inspiration, she rushes out again and has her hair cut to sell. Della receives $20.00 for selling her hair, just enough to buy the platinum chain she saw in a shop window for $21.00.
When Jim comes home from work, he stares at Della, trying to figure out what's different about her. She admits that she sold her hair to buy his present. Before she can give it to him, however, Jim casually pulls a package out of his overcoat pocket and hands it to her. Inside, Della finds a pair of costly decorative hair combs that she'd long admired, but are now completely useless since she's cut off her hair. Hiding her tears, she jumps up and holds out her gift for Jim: the watch chain. Jim shrugs, flops down onto the old sofa, puts his hands behind his head and tells Della flatly that he sold his watch to buy her combs.
The story ends with a comparison of Jim and Della's gifts to the gifts that the Magi, or three wise men, gave to Baby Jesus in the manger in the biblical story of Christmas. The narrator concludes that Jim and Della are far wiser than the Magi because their gifts are gifts of love, and those who give out of love and self-sacrifice are truly wise because they know the value of self-giving love.
