It is the Christmas party, the tables are being arranged, and the atmosphere is filled with joy. Clara invites the children and friends to join a dance. She is given a wonderful birthday present: a puppet.
Afterwards, when people leave, Clara goes to sleep in the armchair. The clock tolls midnight, the room is transformed in an unreal and illusory twist. Clara seems to be hypnotized; the dream turns out to be a nightmare. Giant rats appear. Soldiers interfere to protect the young girl and a battle erupts. Right at the crucial moment a young soldier appears. Clara recognizes him as her puppet now transformed into a young and handsome young soldier. The room turns into a haunted forest that the young man must take her through to reach the fairy kingdom. Bit by bit, the compassion of Clara for the puppet is turning into her love for this young man. In the middle of the forest, the fairies and their queen welcome a young couple with a whirling waltz before accompanying them back to the kingdom of dreams and fairies. In the grand hall of the palace, the fairy says: “We welcome you two young people to our dance celebration; just leave your worries outside… in this place, you will have happiness and amusement, – to the feast!”
At the feast, the queen invites the young couple to enjoy an ardent Spanish dance, and a dance of naughty Russian boys, and Arabian dance, a dance of two Chinese clowns and the lively dance of the tree spirits.
Full of joy, Clara and the young man are persuaded to dance, isolated from the world, like those who are in love. The festival is underway; a joyful waltz lures the guests onto the dance floor. Suddenly, Clara is left alone, the others have all disappeared. The young man who appears for the last time before leaving the dream and disappearing good, leaving Clara with the puppet in her hands, and dazed by her dream, half way between reality and fairy tale.