In 1985, an 8-year-old John has no friends and thus, is very lonely and doesn't have much fun. One day, when he tries to have the neighborhood boys (who were busy beating up Greenbaum) play with him, they rudely tell him to leave. Saddened and disappointed, John goes back home as the boys continue to beat up Greenbaum.
During Christmas, John's parents get their son a present: A stuffed teddy bear. John immediately grows attached to it and names it Teddy. One night, in bed, John tells Teddy that he wishes he could come to life so they can be best friends "forever and ever".
The next morning, John wakes up, but Teddy isn't in bed with him. He looks everywhere in his room and soon finds Teddy alive and talking to him. At first, John is startled and screams in terror, only for Teddy to remind him that he wished for him to come to life. Remembering his wish, John is now overjoyed since they have become best friends. He goes inside to tell his parents Steve and Helen; unfortunately, they do not believe him and instead humor him as Helen pretends to be amazed. John insists Teddy is alive and proves it to his parents when Teddy comes into the room. When they see Teddy, John's parents are shocked and terrified. Steve orders his son to come with him and tells Helen to get his gun so he can shoot Teddy and then call the police. Teddy apologizes to Steve for scaring him and tells him that he did not mean to scare anyone since he just wanted to be best friends with John. After John explains the rest to his father and the parents are now convinced, Helen is quite pleased and tells Teddy he is a Christmas miracle and is just like the "baby Jesus". She and Steve accept Teddy into the family and take him in as their adoptive son.
Soon, Teddy's story is spread all around the world (even on the news). Teddy has now become a celebrity, guest-starring on The Johnny Carson Show, in which Carson tells the young teddy bear he thought he was going to be taller. Teddy jokingly responds by telling Carson that he thought he was going to be "funnier". This makes Carson and the audience laugh hysterically.
One night, John and Teddy are in their tent in the house during a thunderstorm. A bit scared, John asks Teddy if he promises they are going to be "thunder buddies" for life, to which Teddy confirms and keeps his promise, comforting John.
John returned in the sequel.
- John is often thought to be the deuteragonist of the first film.
- There once was a rumor that said Kevin Bacon played John, but this wasn't true.
- As well, Danny Anderson (the original rumored voice of Young Ted) was rumored to have played Young John, but this wasn't true either.