Part commentary on autocracy and revolution, part apologia for (or indictment of) of the consolatory power of imagination, Guillermo del Toro's El Laberinto del Fauno (AKA Pan's Labyrinth) is a bleak and beautiful nightmare of a film. It is a story about a child that is decidedly not for children. Even many adults will find the violence in it disturbing; the "real" world that del Toro presents is far more horrifying than the fantastic one. The recent trend in movie fantasy is towards triumphal tales of heroism, tinged with darkness—the Lord of the Rings films, the Harry Potter adaptations—but the story of El Laberinto is less airy. There are fewer possibilities, a more claustrophobic atmosphere of danger, more suffering. It is, one might argue, much more real.

It begins as it ends: a girl lies bleeding, gasping for breath, while someone sings a lullaby over her. We know immediately there will be no happy ending. And yet the film's second beginning is that of a fairy tale—a narrator tells the story of a princess of the underground, where there are neither lies nor pain. The princess (so the story goes) wanted to see the world above, so she sneaked out of her father's kingdom. She lived and died beneath the open sky; but her father still searches for her soul, which endures.

This is the story we are told as we are introduced to bookish Ofelia (Ivana Baquero) and her mother, who is "sick with baby." Del Toro doesn't make it clear whether the story is one from Ofelia's books, or a story about her. The implication is that Ofelia may not know the difference. It is 1944, we are in Spain a few years after the end of the Civil War, and the two are on their way to meet the mother's new husband (and father of her unborn child), Captain Vidal. On the way, Ofelia finds a stone idol and a mantis-like creature which she takes for a fairy; the creature follows the little caravan to the Captain's base in an old mill.

Vidal (Sergi López) is the Ogre-bridegroom of this tale; while Ofelia's mother (Carmen, played by Ariadna Gil) takes pains to impress upon her daughter what they owe him for taking them on, it is clear that Vidal cares nothing for either of them. It is only his unborn son, his legacy, that concerns him. He carries a talisman of his own father, a broken watch with a cracked face—the story, which another officer recounts at a dinner party, is that Vidal's father broke the watch when he fell in battle, so that his son would know the moment of his death. But Vidal denies the story. He sees such tales and talismans and weaknesses; what matters is duty. While his legacy is secure, he does not even seem capable of fear.

Vidal's world is one of order and discipline; he is in the mountains to eliminate a source of disorder, an untidy band of rebels. In doing so he commits acts of shocking brutality. There is an omnipresent threat of violence about him, even when he is alone in his room, shaving. Yet to call him sadistic is to credit him with too much humanity—these are not acts of passion but of necessity, in his mind.

Ofelia has no place in Vidal's narrow existence. She clings to her mother, but at the same time feels betrayed by her conflicting expectations. (One moment Carmen is chiding Ofelia for bringing so many books out to the country, where she will be playing outside—the next she is rebuking her for muddying her shoes.) She does find a sort of surrogate parent in Mercedes, a house-maid who is collaborating with the rebels, but their relationship is impeded by mutual uncertainty. Mercedes (played by Maribel Verdú) isn't really sure what to make of Ofelia's young idealism. Asked by the girl if she believe in fairies, Mercedes tells her no, but that there were many things she once believed in that she no longer does.

Excluded as she is from the concerns of the adults around her, it is hardly a surprise that Ofelia follows the "fairy" when it reappears. On the land near the mill she finds the Labyrinth of the film's title, and at its center a staircase descends into a hole; there, a faun who is as much tree as goat (del Toro's fantasy creatures are as grimy and visceral as Peter Jackson's humans were in the Lord of the Rings films) tells her she is the daughter of the king of the underworld. Ofelia is ready to believe him. At least, she wants badly enough to escape that she is willing to undertake three tasks to prove herself.

Fittingly, Ofelia's gateway into her fairy-tale is a magic book, The Book of Crossroads. In the light of day words and pictures flow across the blank pages, detailing her next task. Her challenges stand in opposition to Vidal's world; a gluttonous toad stands for the bourgeois guests at the Captain's dinner-party, while a pedocidal ogre (the horrifying Pale Man, who wears his eyes in the palms of his hands) stands for the Captain himself.

And yet, as we see more of Vidal's attempts to root out insurgents—he beats a young man to death with a bottle in front of his father, and eagerly tortures a captured rebel—even the Pale Man becomes less terrifying in comparison. Ofelia's sojourns into fantasy become lengthier, and even seem to bleed into "reality." When concern for her mother's difficult pregnancy leads her to (at the faun's advising) place a mandrake root under her bed for protection, the thematic conflict becomes manifest. The Captain discovers the root and reveals it to his wife; Carmen castigates Ofelia and throws the root on the fire. Life is not a fairy tale, she tells her daughter; it is hard and cruel. As if to prove the point, she dies almost immediately afterward while giving birth to the Captain's son. The harsh reality of the scene leaves the viewer wishing that the adults could just believe in the magic as Ofelia does—and if the magic is not real and the world is so terrible, who can blame us (or Ofelia) for taking solace in make-believe?

Though the setting—at first bucolic, then gradually darker and shadowy, as though a stone sky were settling in above—does much of the work of giving the film its trapped, desperate feel, it is the central performances which make El Laberinto as harrowing and sad as it is. López is riveting as the Captain, particularly as he lurches Rasputin-like, drugged and multiply stabbed, through the closing act. Verdú's Mercedes is no less impressive, whether in heroic mode or as an out-of-her-depth guardian to Ofelia. And Ivana Baquero is heartbreaking, whether facing down the evil toad while shivering and covered in mud, begging her unborn brother not to hurt her mother, or stealing that same brother from the Ogre-Captain. Ofelia is so brave that when we see her dying vision, of a return to the kingdom underground, we are tempted to believe it. Still, there is the question of whether this comforting fairy-tale monarchy is not simply a glossier version of the Captain's world, an orderly world where everyone does what they are told.

For all its thematic complexity, what makes El Laberinto stand above so many films—not just fantasy ones—is the way it pulls the viewer into the story. The illusion presented is complete and gorgeous (even when terrible), without metatextual asides designed to make the viewer feel clever. Del Toro would rather engage his audience with the story than constantly remind us that we are watching one. It's this emotional resonance that makes this poignant film an instant classic.

David J. Schwartz's first novel, Superpowers, will appear in 2008 from Three Rivers Press and Vintage Originals UK. He lives in Chicago.