Jerry, Jimmy, and Cathy stumble upon a mysterious castle with a beautiful princess asleep in the garden. The princess is really Mabel, the housekeeper's niece, who is only pretending to be royalty. But when she shows them a secret room filled with treasure where they discover a magical ring, enchantment becomes a reality.

The enchanted castle of the title is a country estate in the West Country seen through the eyes of three children. The lake, groves, and marble statues, with white towers and turrets in the distance, create a fairy-tale setting. In the middle of the maze in the rose garden, they find a sleeping fairy-tale princess.

The "princess" tells them that the castle is full of magic, and they almost believe her. She shows them the treasures of the castle, including a magic ring she says is a ring of invisibility. When it actually turns her invisible, she panics and admits that she is the housekeeper's niece, Mabel, and was just play-acting.

The children soon find that the ring has other magical powers, such as making the "Ugly-Wugglies" (Guy Fawkes style dummies they had made to swell the audience at one of their play-performances) come to life. They eventually discover that the ring is actually granting their own wishes, and that the disturbing results stem from their failure to specify those wishes precisely.