Recently divorced Mrs. Grace (Mary-Louise Parker) moves into the Spiderwick Estate with her children when it is given to her by her elderly aunt Lucinda (Joan Plowright), though identical twins Jared and Simon (Freddie Highmore) and their older sister Mallory (Sarah Bolger) do not want to move from the city. When Jared uncovers a dumbwaiter system behind a wall, Jared finds a monogrammed key and discovers the study of the late owner of the estate, Arthur Spiderwick (David Strathairn). Jared uses the key to open a chest, he finds Spiderwick's field guide to faeries; although an attached note warns him not to read it, he does so anyway.
Soon after, Jared meets a brownie named Thimbletack (Martin Short), who explains that magical creatures are normally invisible, but can reveal themselves at will. He tells Jared about a protective circle that Arthur Spiderwick placed around the house and gives him a stone with a hole through which he can see faeries.
However, a shape-shifting ogre named Mulgarath (Nick Nolte) wants the field guide for himself so he can rule over all faerie-kind. He sends his goblins to obtain it, and they kidnap Simon, mistaking him for Jared. Meanwhile, Jared meets Hogsqueal (Seth Rogen), a hobgoblin and bitter enemy of Mulgarath. Hogsqueal gives Jared the ability to see faeries without the aid of the stone. Mulgarath lets Simon go, but Jared, who is hiding, is spotted and the twins are chased into the house, managing to escape only with Mallory's help.
The children decide to visit their great-aunt Lucinda, now in a psychiatric hospital, for advice. While Simon distracts the goblins, Mallory and Jared manage to reach a tunnel under the estate. Lucinda tells them that they need to find Arthur Spiderwick and have him destroy the book; however, Arthur is being held captive by Sylphs, a type of faerie. Suddenly, Mulgarath's goblins attack them and steal several pages from the book before they are driven off. On their return, Hogsqueal warns them that one of the stolen pages will allow Mulgarath to destroy the protective circle when the moon rises.
The siblings use the book to summon Arthur Spiderwick's pet, a griffin, which takes them to the realm of the Sylphs. There they meet Arthur, who has not aged but is also unaware of the time he has spent there. After returning home again, Jared, Simon, Mallory, and Helen arm themselves with steel knives and home-made bombs prepared by Simon. When they are forced into the kitchen, they place all of their bombs into the oven, detonating them and killing all of the goblins.
Mr. Grace (Andrew McCarthy) enters the house and tells Jared that he came to apologize. Jared, realizing that it is not his father, stabs him in the stomach, revealing him to be Mulgarath in disguise. Jared escapes with the book through the dumbwaiter while Mulgarath gives pursuit. On the roof, Jared throws the book onto the lawn; as Mulgarath transforms into a raven to catch it, he is snatched and eaten by Hogsqueal.
The Graces bring Lucinda back to the house, and the Sylphs appear, bringing Arthur. He cannot remain outside of the faerie realm, but Lucinda asks to be taken with him instead; the Sylphs transform her back into her six-year-old self and spirit the two away.
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