Remember Ofelia, lying on the ground, blood flowing back into her nostrils as she stares blankly toward the camera? Well, it turns out our beginning was actually our ending; Ofelia's death and its reversal is the narrative of the movie.
We witness her birth in the story of Princess Moanna and her journey back to her origin is a process of her mortal death. It's all a bit morbid if you really think about it…but the ending itself is happy.
Some people like to complicate things by wondering if any of this fantasy world stuff is real. Well, since all we have is what's on the screen, the fantasy world has to be real. Ofelia really is a princess of the Underground Realm who, through sacrificing her own life for the blood of her brother, gets to live in the place of no pain or lies with her parents.
Just know that, while Ofelia's death may seem tragic to Mercedes and the rebels, it's just the final stage of her journey, a necessary task that she had to complete to return home to her mother and father.
Although, if her mother's the moon…who's that lady sitting next to her pops?