Sarah Williams (Jennifer Connelly
) was a teenager with a large imagination and love for fantasy stories, so much so that she enacted her favorite storybook, the Labyrinth, whenever she could. She happened to have been pretending that she was the heroine in her story while wandering in the park near her house when the clock on the near by city hall building struck, informing her it was 7pm. She realized she was an hour late and needed to get home to watch her baby stepbrother, Toby (Toby Froud). After arguing with her stepmother about her tardiness and feeling ignored by her father, Sarah was left alone with her fussy infant brother. Angered that her stepmother had given her brother one of her favorite teddy bears, a tattered toy called Lancelot, Sarah shouted into the air for someone to take her away from 'this awful place.' To get Toby to stop crying, she told him the story of how the Goblin King was in love with the girl who was 'forced to stay at home with the baby' and that he had 'given her certain powers.' But Sarah in no way believed this story could be real.
In anger that the child wouldn't stop crying, Sarah did call for the goblins to take her brother. They took Toby away and Jareth (David Bowie
), the King of the Goblins, gave her an option; she could take her dreams or spend 13 hours in his kingdom, an ever-changing maze called the Labyrinth. If she was able to get to the castle at the center within the specified time, her brother would be spared from becoming a goblin. Sarah was resolved to save her brother and the king left her to do her task.
She immediately met an ancient looking dwarf with a feisty attitude who showed her how to enter the Labyrinth. His name was Hoggle (voice Brian Henson
) and he told her not to take anything for granted in that place; she didn't seem to find him very helpful and basically told him to leave. However, eventually she got herself stuck in an oubliette, and the one sent by the Goblin King to 'rescue' her was Hoggle.
But Hoggle was beginning to like Sarah and against the orders he was given to send her back to the beginning of the Labyrinth, having her start all over again, and therefore be late, he made the choice to help her get to the center and reach her brother. This did not bode well with Jareth, who in umbrage at Sarah's haughty attitude took three hours of her time away and threatened to send Hoggle to the most horrible place known in the Labyrinth for his betrayal, a stinky land of slimy mud called the Bog of Eternal Stench. Then Jareth turned to Sarah and asked her how she was enjoying his Labyrinth. When she flippantly said it was a 'piece of cake,' the king sent a machine covered in spinning knives after her and Hoggle, then disappeared. They were able to escape, yet Hoggle got scared by the sound of a howling creature and said he was a friend to no one but himself, leaving Sarah to fend for herself.
Sarah forced herself not to be afraid, remembering she had been told 'things aren't always what they seem in this place.' She found Ludo, a giant furry beast and a gentle creature despite his massive size, who became her friend when she saved him from being tortured by a bunch of goblins. But she became separated from Ludo too and found herself in a strange forest where she met the Firies, creatures that were able to dismember themselves and take off their heads. They tried to take off her head, which of course didn't work, but they didn't stop trying to mutilate her, so she threw their heads away. Hoggle came to her rescue, but she didn't know that the Goblin King had threatened that if she ever kissed him, he would immediately be sent to the Bog. As soon as her lips touched the dwarf's bald head in a kiss of gratitude for being rescued, the stones beneath them shook and they fell to the Bog. Thankfully they didn't fall into the muck. They found Ludo there and met Sir Didymus, a fox knight with a sheepdog as his steed, who decided to aid Sarah in her quest for her brother. As the castle was not much further, there was hardly anything left to prevent her from reaching Toby in time.
Except one thing. The Goblin King had forced something on Hoggle; he was to give Sarah a peach that would make her forget about Toby. And Sarah was hungry, which left Hoggle no choice but to give the fruit to her. Handing it to her, he left in shame at having to obey the king.
By eating the peach, Sarah found herself in a dream, in a ballroom full of masked faces. She wore a beautiful silver gown and the Goblin King held her tightly in a dance, but she knew there was something she had to do so she left his arms and broke free of the crystal ball he had placed her in.
She awoke in a junkyard, peach in hand, but she still couldn't remember what she was supposed to be doing. A goblin woman with a collection of knickknacks on her back led her to a room: her bedroom. Sarah ran to her bed and flopped down onto it, burying her face in the pillow. It had all been just a terrible dream. But it wasn't a dream, for as soon as she opened her bedroom door, the goblin woman came in and tried to get her to begin a collection of knickknacks from her room for herself. One of the items happened to be her book of the Labyrinth and she was immediately reminded that she needed to save Toby. Her friends had followed her to the junkyard when she had been trapped in the crystal and pulled her to safety. They quickly hurried to the nearby castle, for she had less than an hour left.
They entered the Goblin City, which surrounded the castle, and soon found goblins attacking them in hordes. But eventually they made it through the chaos to the castle. The throne room was empty and a clock on the wall let Sarah know she had less than 5 minutes left to reach her brother. The only direction Jareth could have taken Toby was up the stairs, and Sarah went it alone, to the concern of her friends.
When she reached the room at the top she had to hold to the wall to keep from getting dizzy. This room had many stairways that led to nowhere and walkways between. There was no up or down and she didn't know which way to go. But the Goblin King made himself known, standing below her and she gasped when she saw him. He easily walked around the ledge to her, even walked straight through her, trying to intimidate her. With an evil grin he threw a crystal and she watched as it bounced across the multiple perspectives of the room, only to land in the hands of her brother, who seemed to be sitting upside down above her. Now that she knew where Toby was, all she had to do was get to him, but that was the whole problem. Toby would crawl somewhere different the second she thought she had neared him and, unlike her, he didn't know he wasn't supposed to be able to defy gravity and crawl on the ceiling. Finally she found him directly below her, sitting on the floor, dangling his feet over the ledge of a door. Toby was right there, twenty feet below her, and she had no way of getting to him. Sarah didn't know how long this had been taking her but knew she hardly had any time left. All that she knew was that if she didn't hold Toby in her arms in time, he would never be the same again; she had to save him from becoming a goblin. So with a gulp and wincing of her face at the thought of how broken her bones would be once she fell to the ground beside him, she jumped.
But she didn't hit the floor. In fact, as she kept falling, the room was breaking up around her. Finally her feet hit a floor and she found the Goblin King slowly walking towards her from out of the shadows. He wore all white, his cape of feathers flowing about him as he neared her. She began to state the lines her story said would defeat him and finalize her brother's safety, but the king stopped her and offered her dreams to her once again; he even offered himself. But her only resolve was to save Toby, so she completed her dialog and found herself back in her home. The defeated Goblin King flew out the window, banished to live in an owl form.
Sarah ran upstairs to ensure that her brother had been returned and found Toby sleeping soundly. She went to her room and began to put away those things that were part of her childhood fantasies, but as she did so, she saw the faces of her friends from the Labyrinth staring at her in her mirror. They told her they would always be around if she needed them, and she told them that every now and again in her life, she would.