Eight-year-old Princess Irene lives a lonely life in a castle in a desolate, mountainous kingdom, with only her nursemaid 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 anxious to take revenge on their human neighbours. One rainy day, the princess explores the castle and discovers a mysterious lady who identifies herself as Irene's namesake and great-great-grandmother. The next day, Princess Irene heads outside but is chased by goblins and rescued by a young miner, Curdie.

At work in the mines, Curdie overhears the goblins talking and learns their weakness: they have very soft, vulnerable feet. He also hears that the goblins intend to flood the mine. Irene is about to see her great-great-grandmother again, but is frightened by a cat and escapes up the mountain; the light from her great-great-grandmother's tower leads her home. Her great-great-grandmother gives Irene a ring attached to an invisible thread, which connects her constantly to home.

When Curdie explores the goblins' domain, he is discovered by the goblins and stamps on their feet with great success; when he tries to stamp on the Queen's feet she is uninjured due to her stone shoes. The goblins imprison Curdie and Irene's magic thread leads her to his rescue. Curdie steals one of the goblin queen's stone shoes. Irene takes Curdie to see her great-great-grandmother but she is visible only to Irene. Curdie learns that the goblins are digging a tunnel in the mines toward the king's palace, where they plan to abduct the Princess and marry her to goblin prince Harelip. Curdie warns the palace guards about this, but is imprisoned instead and contracts a fever through a wound in his leg, until Irene's great-great-grandmother heals the wound.

The goblins come to abduct the princess, but Curdie escapes from his prison and stamps on the goblins' feet. He follows the magic thread to Irene's refuge at his own house, and restores her to the king. When the goblins flood the mines, the water enters the palace, and Curdie warns the others; the goblins drown. The king asks him to serve as a bodyguard; but Curdie refuses, saying he cannot leave his mother and father. Instead he accepts a new red petticoat for his mother.

In the 1960s, the novel was adapted in animated form by Jay Ward for his Fractured Fairy Tales series. This version involved a race of innocent goblins who are forced to live underground. The ugly goblin king falls in love with a beautiful princess, but a prince saves her by reciting poetry because goblins hate it.

A full-length animated adaptation of the book, directed by József Gémes, was released in 1992 in the United Kingdom, and in June 1994 in the United States. This Hungary/Wales/Japan co-production, created at Budapest's PannóniaFilm, Japan's NHK, and S4C and Siriol Productions in Great Britain, starred the voices of Joss Ackland, Claire Bloom, William Hootkins and Rik Mayall.^[5] The film's producer, Robin Lyons, also wrote the screenplay and voiced the Goblin King. However, it was not well received commercially nor critically upon its US release from Hemdale Film Corporation in summer 1994, reportedly grossing only $1.8 million domestically and receiving mainly negative reviews (compared to Disney's very successful The Lion King that was released during the same month in the United States).

The film's title is "De Prinses van het Zonnevolk" in Dutch (English: The Princess of the Sun-people), "Prinsessan og durtarnir" in Icelandic (The Princess and the Trolls), and "La princesse et la forêt magique" (The princess and the magic forest) in French.

• The Princess and the Goblins is also a poem by Sylvia Plath (1932–1963).
• Shirley Temple played Princess Irene in a production on an episode of her television show. Although the plot follows the basic outline of Macdonald's story, it glosses over the darker elements and is played primarily as comedy. Irene and Curdie are portrayed as young adults instead of children (with hints of a budding romance), and the goblins are forgiven their evil deeds and reform.
• It was a book in the "100 Classic Books" collection for the Nintendo DS.
• Twyla Tharp used the story in the full-length ballet of the same title. It was her first to incorporate children and was co-commissioned by Atlanta Ballet and Royal Winnipeg Ballet in 2012.^[6]

The sequel to this book is The Princess and Curdie.

• J. R. R. Tolkien's depictions of goblins within Tolkien's legendarium was heavily influenced by the goblins within The Princess and the Goblin. ^[7]
• In C. S. Lewis' novel That Hideous Strength, Elwin Ransom says that he lives 'like the king in Curdie', and later in the novel, Jane Studdock reads the 'Curdie books'.
• G. K. Chesterton wrote of The Princess and the Goblin:

I for one can really testify to a book that has made a difference to my whole existence, which helped me to see things in a certain way from the start; a vision of things which even so real a revolution as a change of religious allegiance has substantially only crowned and confirmed. Of all the stories I have read, including even all the novels of the same novelist, it remains the most real, the most realistic, in the exact sense of the phrase the most like life. It is called The Princess and the Goblin, and is by George MacDonald, the man who is the subject of this book.^[8]

— G. K. Chesterton, Introduction to George MacDonald and His Wife (1924), page 1

• The Princess and the Goblin at Standard Ebooks
• Public domain version of The Princess and the Goblin at Project Gutenberg
•   The Princess and the Goblin public domain audiobook at LibriVox
• The Princess and the Goblin title listing at the Internet Speculative Fiction Database
• The Princess and the Goblin at IMDb