Eric Mercer an ER doctor is shot and killed by someone in a Santa suit. Turns out Eric also worked as a mob doctor for Dino Scarpella and the Carlucci crime family. Castle knows Dino from some of his book research and reaches out to the mobster.
When Beckett arrests Christopher Carlucci for the murder, Dino calls Castle in to say they've got the wrong man and he wants Castle to investigate for him personally.
Turns out Eric operated on Luca Tessaro from a rival mob family when he'd been shot. Eric helped make it look as though Luca had died in order for he and Dino's daughter Jane to run off together as being from rival families meant they would never be accepted.
But it turned out that Detective McBride from the Organized Crime Unit actually got greedy and started moving in on some of the mob's money making schemes. He tried to kill Luca and then killed Eric when he believed they could expose him.
Det. McBride is killed while in custody. When the District Attorney's office hears that Castle had close ties to the mobsters who may have wanted him dead and had inside information about the McBride's movements within the system, they ban Castle from working with the NYPD. Castle doesn't tell Beckett as he doesn't want to ruin everyone's holiday party.
Lanie's parents are in town on a short visit and it turns out that she told them that she and Esposito were engaged so that they'd stop bugging her. Now she needs Javi to play the role, which he's surprisingly happy to do. But in the end they both realize that marriage isn't the direction their relationship is headed.