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Meet Tiffany Aching, a scrappy nine-year-old girl who lives on a farm and is not so fond of her youngest—and only—brother. Tiffany starts to see strange creatures, including a boat filled with tiny blue men and a river creature with big dinner plate eyes. She consults her fairy tale book and ends up hitting the creature with big eyes—which is called a Jenny Green-Teeth—with a frying pan; then she goes to the traveling teacher tents in town and asks a real life witch with a talking toad about the creatures that she's seen.
It turns out that Tiffany wants to be a witch because her late grandmother Granny Aching was one (or so Tiffany thinks). The witch, Miss Tick, warns Tiffany that she can feel a change in the air and that two worlds are about to collide. That night, Tiffany is awoken by strange voices. It turns out that the tiny blue men—known as Nac Mac Feegles or pictsies—are stealing her family's sheep and eggs. Tiffany makes them stop, and they're very sorry.
The next day though, as Tiffany is preparing to return to Miss Tick's to ask her about what she saw during the night, her mother comes rushing in and asks where her little brother is. They can't find little Wentworth anywhere. Dun dun dun…
Tiffany goes to the teacher's tent, but everyone has left, including Miss Tick who has gone to get backup. She's left her toad behind, though. So along with the toad, Tiffany heads off to talk to the little blue men, who can help her find where Wentworth is. Because she's the granddaughter of Grandma Aching, the Nac Mac Feegles respect her and take her to see their kelda (leader). Apparently the kelda is dying, so she appoints Tiffany as the new kelda to take care of the clan. Tiffany accepts and the kelda passes away, so now it's off to Fairyland to find Wentworth.
Soon Tiffany finds the entrance to Fairyland—thanks to candies that Wentworth dropped—and she enters the snow-covered world with the Nac Mac Feegles and the talking toad. They fight all sorts of creatures, including dromes—which trap you into dreams and try to get you to eat dream food so you can never leave. Then Tiffany runs into someone unexpected: the Baron's son Roland, who disappeared last year. Soon Tiffany discovers where Wentworth is and comes face to face with the Queen, who she smacks in the face with her frying pan before running away with Wentworth in tow.
The Queen sends nightmares after them, but Tiffany, Roland, Wentworth, and the Wee Free Men escape into a drome. Tiffany makes the dream this time though, so they end up in the wrapper of Jolly Sailor tobacco—which is what her grandma used to use. They're in the pleasant sea scene when the Queen finds her way into the dream and chases them as a storm and a whale; they try to get to the doorway that leads to the real world before the waves crash in on them, but only Tiffany and Roland make it through.
When Tiffany wakes up again, she realizes she's in her own world and that the Queen is taunting her and telling her that she's going to take over the real world too. Suddenly Granny Aching and her dogs come down from the sky and fight off the Queen's evil creatures. After they've left, Tiffany realizes that she has the power to wake up and fight off the Queen, so she picks up the Queen—who turns into a weird little monkey creature—and sends her back to Fairyland. As this happens, the Nac Mac Feegles, Roland, and Wentworth reappear and they are all reunited.
Tiffany also runs into Miss Tick and the two witches she brought as back-up, who confirm that Tiffany is indeed meant to be a witch and that they'll teach her their ways in the future. Finally Tiffany, Wentworth and Roland make it home. Everyone is overjoyed, but Roland gets all the credit—which annoys Tiffany at first, but then she realizes that her duty is to protect the Chalk and not take credit. The Nac Mac Feegles come to her and ask if they can ask another pictsie to be their new kelda, and Tiffany agrees and goes back to churning butter at the farm.