The book is about Princess Dylia, who suffers from a mysterious illness that leads to insomnia, and her traveling companion, the night-mare Catastrofel Opal [de].

She comes up with ever more creative ways to pass the extra time, such as inventing and exploring new words and imaginary worlds of her own creation.

He assures her that a swift death would be the best outcome for her, suggesting that any resistance would only lead to him haunting her until she, driven to madness, finally takes her own life.

However, as she resists, the night-mare takes Dylia on a journey to Amygdala, the part of her brain responsible for generating the feeling of fear.

The intentions and true personality of the night-mare, who describes himself as immortal and an expert in the 'nightmare business', continue to be alluded to, but remain uncertain and unexplained until the end.

At the same time, they repeatedly find themselves in situations in which Dylia even rescues him from otherwise hopeless predicaments, aided in part by the twilight dwarves who are well-disposed towards her.

At the last moment, Catastrofel Opal changes his mind, pulls the princess out of the perilous area and shows her an escape route through which they can return to reality.

While Catastrofel Opal continues to work on driving the princess mad, she manages to trick him into uttering the phrase "Oh, begone from my sight!"

[citation needed] In Princess Insomnia, Walter Moers once again works heavily with different types of wordplay, such as neologisms and anagrams.