We, like you, are starting to form our own special holiday traditions with our children, especially now with family so far away (we recently relocated from FL). Our kids are also about the same age (my daughter is 3 1/2, my son will be 1 a week before Christmas).
Last year we would take almost nightly drives around the different neighborhoods to view all the lights. My daughter absolutely loved this. Many of the neighborhoods would work together on the lights. One set all their displays to music, while another handed out candy canes along the route. It was a lot of fun for her and easy on me being 9 months pregnant at the time.
Something I always loved as a kid and will start this year with my daughter is baking cookies. I remember starting to bake holiday cookies early December with my grandma and we would bake a ton of different cookies all month long and give them away as gifts to family and friends.
We also do the traditional go see Santa and she helps us decorate the tree. We are also going to do an advent calendar once we find one we like. I love the idea of new pjs for everyone.
Each year since being married, I have cooked a big ham dinner and my in-laws come over for Christmas dinner (they are staying the week with us this year). My daughter got to help with little things with dinner last year (mashing the potatoes with Daddy's help) and we will let her help more this year.
Our son is a little young to help with anything this year, so our main focus with him this year is just keeping him out of trouble since trouble always seems to find him (ah, the fun of boys)!
I know as each year goes by, we will find more family traditions to cherish with our children. Good luck on making your own traditions! And if you hear of any really great ideas, I would love to know.