Peer's uncles make him do all the work around the mill, and at first he despairs, especially when he meets Granny Greenteeth, the sinister water-spirit who lives in the millpond.

His other friends are his dog, Loki, and Hilde, the pretty and confident daughter of Ralf Eiriksson, a nearby farmer.

In his absence, Peer and Hilde discover the plot which his two uncles are hatching: to sell children as slaves to the trolls, in exchange for gold.

In the last pages, we learn that Ralf's voyage took him to Vinland in America, in a similar fashion to Leif Eriksson in the Saga of the Greenlanders.

The story is influenced by legends and folktales about trolls and nisses collected in Thomas Keightley’s ‘Fairy Mythology’, 1850, and William Craigie’s ‘Scandinavian Folklore’, 1896, as well as by Hans Christian Andersen’s story ‘The Elf Hill’, a satirical description of a troll wedding.