The film begins with the Potter family moving into a new apartment complex. While unpacking, their young daughter Wendy is attacked by a troll, who inexplicably lives in the basement. Using an emerald ring, it captures Wendy within it and transforms itself into her. After meeting the other eccentric tenants, the family notices Wendy's unusual behavior (roaring, biting, tossing people across rooms), but they attribute her behavior to the stress of the move. The only one that notices something is terribly wrong is Wendy's brother, Harry Potter Jr. (Noah Hathaway).

    

    Frightened by his sister's sudden and violent changes, he seeks solace in the company of a mysterious old lady, named Eunice St. Clair (June Lockhart), who lives upstairs. When he tells her of the strange goings-on, she reveals to him her real profession: a witch. Harry asks Eunice to teach him magic, but she says that there isn't time. She tells him of her long history stretching back to the time of magic, when she and a man named Torok fell in love. However, the balance between the realms of magic and men was challenged by Torok in a great war, and he was transformed into atroll as punishment. Eunice stands guard in her apartment, waiting patiently for Torok to challenge the realms again, and that is what is going on now. The troll has already begun going room to room, attacking the tenants and transforming them into mythical creatures according to their personalities, such as goblins, nymphs, an elf and a bugbear, and it transforms their rooms into lush fairy worlds. 

    In a final attempt to stop Torok's hostile takeover of the apartment complex, Eunice and Harry enter the troll's magical alternative world. Eunice is attacked by Torok and turned into a tree stump, and Harry finds his sister trapped in a coffin of glass à la Snow White. Suddenly Torok's great bat monster attacks and disables Harry. When it goes after Wendy, Torok kills it, destroying his carefully constructed fairy realm. As the magic world collapses around them, Harry and his family are given a chance to escape, leaving just as the police arrive. As the police investigate the house, one of them is drawn into a remaining fragment of the alternative fairy world.