A bathroom of an old house in Porvoo. Klaara, a young girl of thirteen, and her younger brother Pekka have just been bathed by the maid and are being dressed for the Christmas feast. Pekka gets into mischief while his sixteen-year-old sister, Liisa, hurries in and out excitedly getting herself ready. It starts to snow outside.
It is dusk while families with their children arrive at the large house where Klaara and Pekka live. The last people to arrive are old Mr Drosselmeier and his young nephew, a naval cadet.
Mr Drosselmeier is greeted by Klaara and Pekka in the hall. Drosselmeier, an eccentric and rather mysterious old man with a passion for clocks and all kinds of mechanical objects, holds the children in thrall with his conjuring tricks. At a certain sign from him the doors in the hall disappear into thin air and they find themselves in…
Drosselmeier changes the hands of the clocks and claps his hands… suddenly everyone comes to life. The room is full of friends and cousins of Klaara. Father Christmas comes in with the Christmas goat. At first the children are frightened but are delighted when they are given all kinds of presents. In the end Pekka is given a handsome hussar’s cap and sword. Drosselmeier and his nephew bring in a magic lantern.
Using lantern sides Drosselmeier tells the story of the young Princess who rejects the Mouse King’s offer of a marriage because she has promised her heart to a handsome Prince. The Mouse King fights a duel with the Prince and the Prince is transformed into a wooden doll, a Nutcracker.
The story makes a deep impression on Klaara. She feels sorry for the Nutcracker doll and is immediately enchanted by him, but her heart is also won over by Drosselmeier’s nephew and, in her imagination, she identifies him with the bewitched Prince. She finds herself alone with the Nutcracker. Pekka comes in and spoils it all by breaking off the Nutcracker’s head. Drosselmeier puts the head back on the body. Klaara binds him with a ribbon and tucks him into her doll’s bed.
All the children are playing with the toys they have just received. The grown-ups come back into the room. It is time for the children to go to bed. The guests leave. Klaara begs to take the Nutcracker upstairs with her, but her mother insist that she leaves him behind in the toy cupboard. Klaara returns to the drawing room where she encounters the nephew who has forgotten his hat. In a romantic gesture she gives him her hair-ribbon as a keepsake. He is surprised, quite unaware that he had captured the young girl’s heart.
Klaara is put to bed and she dreams that the Mouse King appears in her room. He wants to take her away with him, but when she refuses – just like the Princess – he threatens to eat the Nutcracker. Klaara jumps out of her bed and runs through the dark house in the drawing room to save the Nutcracker.
The clock strikes twelve and, before Klaara’s very eyes, the room begins to change: the walls disappear, the ceiling rises up and weird roots begin to grow down inside. Even the toy cupboard starts to grow bigger. The room fills up with gruesome mice who chase after her. From the cupboard, which is gradually changing into a fort, the Nutcracker emerges. He, too, has grown much bigger and at first strikes fear into the mice. But enormous rats come to their help and Klaara and the Nutcracker retreat to the fort. Pekka is driven off by the Mouse King. There ensues a duel between the Nutcracker and the Mouse King. The Nutcracker falls wounded. Pekka returns accompanied by mounted hussars, but to no avail: the Mouse King is too strong, the hussars cannot lift their heavy sabres and the mice and rats chase everyone away. Pekka and his soldiers are taken prisoners, leaving Klaara and the Nutcracker behind in despair.
Klaara dreams that the chains fall away and that a great love springs up between her and the Nutcracker. Once again she binds him up with a ribbon and puts him to bed. He then rises up and changes into a Prince with the same features as Drosselmeier’s nephew.
The Snow temporarily pushes the mice to the background, but not for long… Just as Klaara and the Nutcracker are at their wits’ end, Drosselmeier appears with his magic lantern. Drosselmeier leads Klaara and the Nutcracker into the magic lantern.
Drosselmeier, Klaara and the Nutcracker arrive deep inside the magic lantern – this is Drosselmeier’s kingdom. He presents Klaara and the Nutcracker to his mechanics who are responsible for the upkeep of the machinery. Suddenly, however, the Mouse King and his rats fight their way into the magic lantern. Drosselmeier frightens them with a mechanical cat’s paw and a cat’s eye which peers inside through the lens. Another duel takes place and the Nutcracker succeeds at last in killing the Mouse King. The mice all disappear and the spell is broken: the Nutcracker finally turns into the Prince for good.
The machinery of the magic lantern begins to turn by itself, bringing Klaara and the Prince into strange countries. Faster and faster turns the machine and dark clouds appear. Klaara is lifted up high, falls and wakes up in her…
Klaara sits bolt upright and Pekka comes in. Miraculously, they have had the same dream. They realize for the first time how much they care for each other. They walk down together, out of the front door, in the night. They just catch sight of Drosselmeier and his nephew before they disappear in the night.