In a mystical narrative, Princess Moanna (Ivana Baquero), the daughter of the king of the underworld, ventures into the human realm. However, the brilliance of the sunlight blinds her and wipes her memory clean. As a result, she becomes mortal and ultimately meets her demise. The king, convinced that her spirit will eventually return to the underworld, constructs labyrinths around the world to act as portals for her return.
Fast forward to 1944 Francoist Spain, we meet Ofelia (Ivana Baquero), a ten-year-old girl who travels with her ailing and pregnant mother, Carmen (Ariadna Gil), to meet her new stepfather, Captain Vidal (Sergi López). Vidal, who is the son of a renowned commander that perished in Morocco, is a staunch believer in Falangism and has been tasked with hunting down republican rebels. A peculiar stick insect catches Ofelia's attention; convinced it to be a fairy, she follows it into an ancient stone labyrinth. However, she is intercepted by Mercedes (Maribel Verdú), Vidal's housekeeper, who is clandestinely aiding her brother Pedro (Roger Casamajor) and the rebels. Mercedes, privy to Vidal's strategies, provides crucial information to the rebels that allows them to evade capture.
That night, the insect visits Ofelia's room and transforms into a fairy, guiding her into the labyrinth, where she encounters a faun (Doug Jones). The faun believes Ofelia to be the reincarnation of Princess Moanna and presents her with a book containing three tasks that she must fulfill to reclaim her immortality and original essence, ensuring that she retains her royal spirit.
Ofelia embarks on her first task, which involves retrieving a key from the belly of a gigantic toad. However, her concern for her mother, whose health is deteriorating, weighs heavily on her. The faun provides her with a mandrake root, instructing her to place it beneath Carmen's bed in milk, along with regular blood offerings to alleviate her mother's condition. With the aid of three fairy guides and a piece of magical chalk that allows her to open doors to various places, Ofelia confidently tackles her second task, which is to reclaim a dagger from the lair of the monstrous Pale Man (Doug Jones). Despite strict warnings against eating from the lavish feast laid before her, Ofelia cannot resist and consumes two grapes, provoking the Pale Man into a furious chase after he devours two of her fairy companions. Ultimately, she escapes, but the faun, enraged by her disobedience, withholds the details of her third task.
As events unfold, Ofelia witnesses the growing brutality of Captain Vidal as he relentlessly hunts the rebels. After he executes two local farmers on unfounded charges, the situation escalates as he interrogates and murders a captured rebel. The doctor attending to the captive, Doctor Ferreiro (Álex Angulo), meets a grim fate at Vidal's hands following the revelation of his allegiance to the rebels. Soon after, Vidal discovers Ofelia tending to the mandrake root, dismissing it as madness. Carmen agrees and destroys the root, which leads to her experiencing agonizing contractions and ultimately dying during childbirth.
In the midst of this turmoil, Mercedes finds herself compromised as a spy and attempts to help Ofelia escape. Unfortunately, they are apprehended, and while Ofelia is confined to her room, Mercedes faces interrogation and torture. In a daring escape, she stabs Vidal non-fatally and rejoins the rebels. The faun, having reconsidered his stance towards Ofelia, returns and insists that she bring her newborn brother into the labyrinth to finalize her quest.
Ofelia successfully retrieves her brother and flees into the labyrinth while Vidal pursues her amidst a rebel attack. Meeting the faun at the heart of the labyrinth, he suggests that the third task requires the sacrifice of innocent blood. However, Ofelia steadfastly refuses to harm her brother. Just then, Vidal confronts them and seizes the baby, ultimately shooting Ofelia in the process. As Vidal returns to the labyrinth's entrance, the rebels surround him, leading to his demise at the hands of Pedro after he expresses a poignant wish for his son to know his name—only for Mercedes to confirm that he will not.
Mercedes enters the labyrinth, finding a wounded Ofelia. In a dramatic turn, drops of Ofelia's blood trickle down a spiral stone staircase to an altar. In the golden throne room of the underworld, Ofelia, now dressed elegantly and without injury, stands before the King, who reveals that by prioritizing her own blood over another's, she has passed the ultimate test. The faun hails Ofelia with respect, calling her "Your Highness." The Queen, her mother, invites Ofelia to assume her rightful place beside her father. As Ofelia succumbs in Mercedes’ embrace, a serene smile graces her face.
The epilogue recounts the story of Princess Moanna, affirming that she returned to the underworld, reigning wisely for centuries while subtly leaving traces of her existence in the human realm, accessible only to those who truly seek them.
