The main storyline of the film, which occurs two years after the Battle of Yavin (2 ABY), takes place on Kashyyyk. During the film, scenes also take place in outer space and in spacecraft including the Millennium Falcon and an Imperial Star Destroyer. The variety-show segments and cartoon introduce a few other locales, such as a cantina on the desert planet of Tatooine and a gooey, reddish ocean planet known as Panna.

The program also features brief appearances by other Star Wars characters, including Luke Skywalker, C-3PO, R2-D2, Darth Vader, Han Solo and Princess Leia Organa (who sings the film's "theme song", set to the music of John Williams's Star Wars theme, near the end). The program also features a cartoon produced by Toronto-based Nelvana that officially introduces the bounty hunter Boba Fett.

The film is notorious for its negative reception. Anthony Daniels, in a documentary promoting the worldwide tour of Star Wars: In Concert, notes with a laugh the Star Wars universe includes "The horrible Holiday Special that nobody talks about". George Lucas had limited involvement with the film's production, and he was unhappy with the results. David Acomba, a classmate of Lucas' at USC film school, had been selected to direct the special, but he chose to leave the project, a decision supported by Lucas. The special has never been re-aired or officially released on video.

It is Life Day (a holiday analogous to Christmas). Chewbacca is on his way home to see his family and to celebrate the holiday, accompanied by his friend, Han Solo. Not long after departing Tatooine in the Millennium Falcon, the duo find themselves chased by two Star Destroyers. Han then sends the Falcon into hyperspace.

Meanwhile, on Kashyyyk, Chewie's family is anxiously awaiting and preparing for Chewbacca's return. Malla switches on a viewscreen-computer, and runs a search for any starships in the area, hoping that the Falcon will be found in the scan, but the results are negative. Malla contacts Luke Skywalker, who, along with his faithful droid R2-D2, is working on his X-wing starfighter. Luke says he doesn't know what has happened. Next, Malla contacts Saun Dann, a local human trader on the planet. He lets her know through a carefully-worded message that Han and Chewie are on their way, and should be arriving soon.

On Kashyyyk, Saun Dann arrives and brings everyone Life Day gifts. Back on the Falcon, Chewie and Han have just come out of hyperspace not far from Kashyyyk. Han notices an increased Imperial presence on the planet, so they decide to land in an unguarded area on the north end of the planet. As they enter the atmosphere, Lumpy hears the roaring of the ship. Believing Han and Chewie might be arriving, Malla opens the door, but instead finds two Stormtroopers and two Imperial officers.

The Imperials force their way into the house. The head officer orders a search of the house for Chewbacca. As they do, Saun Dann and the others attempt to distract them with food and Malla's music video box. When the music finishes, the head officer orders the search to continue. Saun Dann sees he cannot help further and leaves. The head officer tells Malla to keep Lumpy busy while they search his room, so Lumpy (and the viewing audience) watches a cartoon on a viewscreen of one of his father's many adventures.

The cartoon deals with Luke, Han, and Leia's first encounter with Boba Fett. During a search for a talisman, the Millennium Falcon crashes on a water planet known as Panna. Luke and the gang go after them. Upon landing, they run into Fett, who claims to want to help them. They all board the Falcon, where Han has been infected by a mysterious sleeping virus caused by the talisman. Luke immediately contracts the virus as well.

Fett and Chewie go into Panna City to get the cure for the condition. Once they get into the Imperial-occupied city, Fett instructs Chewie to stay behind while he gets the cure. Once away from Chewie, Fett contacts Darth Vader and informs him of the situation.

Back on the Falcon, as C-3PO is caring for Han and Luke, he and R2-D2 intercept the message between Vader and Fett. After evading the Imperials, Fett and Chewie return to the Falcon with the cure. After everyone recovers from the virus, they all learn of Fett's true allegiances. Fett ignites his jet pack and blasts away, promising that he will meet them all again. Everyone then escapes from the planet, and back to the rebel base on board the Falcon.