Eight-year-old Princess Irene lives a lonely life in a castle in a wild, desolate, mountainous kingdom, with only her nursemaid, Lootie, for company. Her father, the king, is normally absent, and her mother is dead. Unknown to her, the nearby mines are inhabited by a race of goblins, long banished from the kingdom and now anxious to take revenge on their human neighbors. One rainy day, the princess explores the castle and discovers a beautiful, mysterious lady, who identifies herself as Irene's namesake and great-great-grandmother. The next day, Princess Irene persuades her nursemaid to take her outside.