The Natal Luz festival is what put Gramado on the Brazilian tourist map. From late October to mid-January, the whole town is decked out with lights, parades, costumed characters, and dozens of ticketed shows in venues scattered around the centre. It is Brazil's largest Christmas celebration by some margin.
Hotels book out months in advance, and prices double or triple. If you love Christmas markets, this is the southern hemisphere version, done with real enthusiasm. If you don't, avoid the dates entirely. The famous Grande Desfile parade and the Nativitaten light-and-water show are the headline acts.