The Princess and the Goblin

"The Princess and the Goblin" is a children's fantasy novel by George MacDonald. Eight-year-old Princess Irene lives a lonely life in a mountainous kingdom, with only her nursemaid, Lootie, for company. Unknown to her, the nearby mines are inhabited by a race of goblins, long banished from the kingdom and now anxious to take revenge on their human neighbours. One rainy day, Irene explores the castle and discovers a beautiful, mysterious lady, who identifies herself as Irene's namesake and great-great-grandmother.