The film is a combined adaptation of the fairy tales "Dwarf Nose" and "Little Muck" by Wilhelm Hauff.

A witch seeks out a kind-hearted child in order to awaken a great stone beast named Dagal.

She tracks down Jacob, the son of the shoemaker Heinz and the grocer Hanna, and invites him into her castle.

At the same time, the King's daughter Princess Greta is turned into a goose by the witch after she discovers her in her father's library stealing a spell which will help her rule the kingdom.

Jacob and Greta meet and plan to overthrow the witch and get back to their families and true forms.