Counselor Drosselmeier visits the Stahlbaum house. He brings gifts to his godchildren. One of the toys catches Maria's attention: a wooden Nutcracker. The toy comes to life to prepare for the battle against the evil Seven-Headed Mouse.
Fritz toys, join the Nutcracker to fight against the Seven-Headed Mouse and his army of mice who are winning the battle. However, Maria intervenes and falls wounded. The family worries about Maria's health.
Godfather Drosselmeier visits the children and tells them the story of Princess Pirlipat and the Krakatuk nut. Young Drosselmeier undoes the enchantment of Princess Pirlipat and Lady Ratilda condemns him to live as an ugly Nutcracker.
While Maria is sleeping, the King of the seven heads appears late at night and asks her to surrender all her dolls and candy in order to leave the Nutcracker alone without harming him. Only the love of a true friend can rescue him.
The Nutcracker invites Maria to take a long walk through magical mystical places. He takes her to the Gingerbread and Confection Ville, where he is the King and asks her to be his Queen.