A sweet little girl loses her parents and has to live with the parents of a brat, but she gets adopted by her aviator godfather who loves her.
Five-year-old Shirley Blake (Shirley Temple) visits Loop Merritt (James Dunn), the aviator friend of her late father, and he tells her one must be pretty inside. Shirley lives in the Smythe house, where her mother Mary Blake (Lois Wilson) works as a maid. Anita Smythe (Dorothy Christy) tells Mary not to have aviators call there. Little Joy Smythe (Jane Withers) is a brat and tells Shirley her psychoanalyst told her there is no Santa Claus. Grouchy Uncle Ned Smith (Charles Sellon) sides with Shirley. Shirley prays for everyone, and on Christmas is happy with her presents, while spoiled Joy throws a tantrum. Adele Martin (Judith Allen), who had been engaged to Loop, arrives on a plane to visit the Smythes. Loop has a party for Shirley and gives her a magic ring so that she can call on him. Shirley sings "The Good Ship Lollipop." Her mother Mary is taking a cake to her when she is killed by a car. Adele tells Loop, and he takes Shirley flying up to heaven, saying her mother joined her father in heaven.
Uncle Ned tells the Smythes to take Shirley in, or he will disinherit them. Loop reminds Adele that she walked out on him. He does not want Shirley to be at the Smythes. Adele promises to take care of her and tells Loop he is the best. Mean Joy tells Shirley she is a charity case; Joy plays train wreck and cries. Loop tells the Smythes he wants Shirley to live with him, her godfather, because he loves her. Ned has his lawyers working on adopting Shirley. Adele tells Loop she is on his side, because love matters most. Mrs. Smythe tells Shirley not to have her dog in bed, and Shirley overhears the Smythes planning how to get rid of her. So Shirley leaves and in a storm goes to Loop. A man offers Loop $1,000 to fly to New York in the storm. Loop sends Shirley back to the Smythes, but she sneaks onto the plane. Ned calls in the police, and Loop is wanted for kidnapping. Ned blames the Smythes for being selfish. In the storm Loop and Shirley have to parachute from the plane.
In court Ned and Loop battle for Shirley. The judge asks Shirley, and she says she wants to live with Loop, Ned, and Adele. Adele shows Loop the magic ring, and they agree to marry. Shirley goes with them and Ned. In the final scene Joy tells her parents she doesn't have to be nice to Uncle Ned anymore, and her mother slaps her.
This story contrasts a loved child who is sweet and loving with a spoiled but unloved child. Loop shows constant love for Shirley and can't get mad at her for even a moment, while the Smythes are the opposite.