Back at the grotto, with Joe gone and Sarah missing, the elves are busier than ever as they finish off all the toys [WORK SONG] – even with the help of mysterious new pixie Barbara – who is actually Titania in disguise. When all the elves have gone, Titania reveals herself and speaks to her accomplice and ‘mole’ John Jobsworth about the planned robbery. Unbeknown to either of them, the mounted head of Robbie hears everything.
Titania leaves to return to the pirate lair – and John is left to tell us why he wants to rob the Sleigh and become the new Santa [I LOVE MARY].
Joe and Sarah return to the workshop to try and recruit good elves to help stop the robbery. Robbie tells them everything he has overheard but none of the good elves believe Joe or Sarah and they have to leave before they get found out.
Joe and Sarah return to the Pirate lair to try and stop the plan from the inside instead. Sarah is initiated into the gang [A PACT] and the evil merriment continues [BAD BOY PIRATE ELVES REPRISE]. Joe is none too pleased when the Bad Boys start flirting with Sarah – but then trouble arrives in the shape of John Jobsworth. He tells Titania that Joe and Sarah are good elves really – since he was the one who stole the presents originally and planted them in Sarah’s bag. An angry Titania locks Joe and Sarah in the dungeon. Depressed and with no hope, Joe and Sarah muse on their sad state of affairs [LULLABY SONG].
Just as all seems lost, a drunken fairy who has lost her way from a nearby production of Cinderella turns up and leaves the pair with a box of Christmas crackers. When the Bad Boys turn up, Joe and Sarah manage to escape by reducing the Bad Boys to fits of hysterics by telling some of the awful Christmas cracker jokes. Once outside, Joe reveals he is upset by Sarah’s flirting with the Bad Boys and tells her goodbye. Sarah is left infuriated by how ridiculous boys can be. [THE TROUBLE WITH BOYS.]
It’s Christmas Eve and Santa has been successfully sent to sleep with poisoned milk. A disguised John Jobsworth takes charge of the Sleigh with an unsuspecting Mary by his side. Titania and her gang then perform the hijack and the Sleigh crashes in some woods. Just as the villains are about to win, Joe bursts out of a box on the Sleigh and a huge fight ensues. The good guys are outnumbered, until Sarah appears. The fight continues and Titania is fatally wounded. She sings a lament. [TITANIA’S DYING SWAN SONG].
Once dead, Titania’s magical feather boa is removed from her. Once in the hands of a good person, the boa has the effect of turning the Bad Boys into Good Boys [GOOD BOY PIRATE ELVES REPRISE].
Santa is found and untied. He comes on in Christmas boxer shorts and John has to give him his uniform back. John in then fired and told the Easter Bunny might have some vacancies.
Joe and Sarah are promoted, but there’s no time for celebration as all the presents have to be quickly delivered before morning. Sarah just has time to tell Joe she would love to go the cinema with him sometime – and for Joe, that’s the best Christmas present ever. [I BELIEVE – REPRISE].