In a fairy tale, Princess Moanna, whose father is the king of the underworld, visits the human world, where the sunlight blinds her and erases her memory. She becomes mortal and dies. The king believes that eventually, her spirit will return to the underworld, so he builds labyrinths (which act as portals) around the world in preparation for her return.
In post-Civil War Spain in 1944 (after Francisco Franco has come into power), protagonist Ofelia travels with her pregnant but sickly mother Carmen, to meet Captain Vidal, her new stepfather. Vidal is the son of a famed commander who died in Morocco, believes strongly in Falangism, and has been assigned to hunt down republican rebels.
A large stick insect, which Ofelia believes to be a fairy, leads Ofelia into an ancient stone labyrinth, but she is stopped by Mercedes, Vidal’s housekeeper, who is secretly supporting the rebels, who include her brother, Pedro. That night, the insect appears in Ofelia’s bedroom, where it becomes a fairy and leads her through the labyrinth. There, she meets the faun, who believes she is the reincarnation of Princess Moanna. He gives her three tasks to complete in order for her to acquire immortality. Meanwhile, Vidal murders two local farmers detained (erroneously) on suspicion of helping the rebels.