It is an expanded version of the short story "Sara Crewe: or, What Happened at Miss Minchin's", which was serialized in St. Nicholas Magazine from December 1887, and published in book form in 1888.

[1] Captain Ralph Crewe, a wealthy English widower, has been raising his only child, a daughter named Sara, in India where he is stationed with the British Army.

The Captain enrolls his seven-year-old daughter at an all-girls boarding school in London and dotes on his daughter so much that he orders and pays the haughty headmistress, Miss Minchin, for special treatment and exceptional luxuries for Sara, such as a private room for her with a personal maid and a separate sitting room (see parlour boarder), along with Sara's own private carriage and a pony.

Intelligent, imaginative and kind, Sara sees through flattery and remains unspoiled; she embraces the status of a 'princess' accorded by the other students, and lives up to it with her compassion and generosity.

Infuriated and pitiless, she takes away all of Sara's possessions (except for an old black frock and her doll, Emily), and makes her live in a cold and poorly furnished attic, forcing her to earn her keep by working as a servant.

Meanwhile Ram Dass, Mr Carrisford's Indian servant, climbs across the roof to retrieve a pet monkey which has taken refuge in Sara's attic.

Between them they devise a scheme whereby Mr Carrisford becomes "The Magician", a mysterious benefactor who transforms her barren existence with gifts of food and warmth and books – snuck in by Ram Dass.

Miss Minchin tries to retrieve the situation, going so far as to threaten legal action if she does not return to the school, and that she will never see any of her friends again, but Sara refuses and Mr Carrisford is adamant.

[6] The novella appears to have been inspired in part by Charlotte Brontë's unfinished novel Emma, the first two chapters of which were published in Cornhill Magazine in 1860, featuring a rich heiress with a mysterious past who is apparently abandoned at a boarding school.

[citation needed] Burnett said that after the production of the play on Broadway, her publisher, Charles Scribner's Sons, asked her to expand the story into a full-length novel and "put into it all the things and people that had been left out before".

[9] The book was illustrated by Ethel Franklin Betts[9] and published in 1905 under the full title A Little Princess: Being the Whole Story of Sara Crewe Now Being Told for the First Time.