Like Halloween Town, Christmas Town is loosely focused on Christmas, and is located through a door (represented by a Christmas tree) in the Hinterlands. As a special world, it represents the holiday of Christmas. Once a year, the ruler Santa Claus will travel throughout the universe to give presents to children named on his nice list.
This location is first seen when Jack decides to go to another holiday world after feeling tired to celebrating Halloween. He is then transported in the world where he discovers that Christmas Town to him is different than what he sees in Halloween Town as he sings the musical number "What's This?". After exploring, Jack hears Santa Claus (as a silhouette) saying "Ho Ho Ho!" It is then later seen during the musical number "Making Christmas" where sequences show elves building toys before for Santa to deliver to the good children before Christmas. Lock, Shock, and Barrel later arrive in the area where they capture Santa Claus and take him to Oogie Boogie's Lair in Halloween Town to which Sally is worried over the idea of Jack's plan of taking over Christmas as it can cause a disaster. Throughout the events of the film, Jack manages to rescue Santa from Oogie Boogie and help him save and fix Christmas.
In Kingdom Hearts II, the Hinterlands will take characters to Yuletide Hill, which they can travel down the Candy Cane Lane to reach Christmas Town. In Christmas Town, characters can visit with Santa Claus himself in Santa's house and explore the shipping & receiving and wrapping rooms of the toy factory. Later in the game, characters can also go by Christmas Tree Plaza to fight a boss battle.
When Sora, Donald and Goofy arrive in this world during Kingdom Hearts II Final Mix, their disguises have changed to fit the Christmas theme. However, Jack never comments on their change of wardrobe. This is likely because, in the original release of the game, their outfits did not change.