The Grace family arrives at Arthur Spiderwick's old mansion as they're moving in. Jared is overjoyed to get a call from his father, who promises to pick up Jared soon. Jared, Simon and Mallory then hear sounds in the wall. Mallory hits the wall with a broom, and an entire section of the wall collapses, revealing a dumbwaiter. Although no one, except Simon, believes him on the strange incidents, Jared uses the dumbwaiter to haul himself up to the attic: a study. In the study, Jared finds a bound leather book titled: "Arthur Spiderwick's Field Guide to the Fantastical World Around You." Jared reads the book, despite a note warning him not to. A montage shows Arthur Spiderwick spending his life putting together a book of all the unseen creatures invisible to the naked eye. He reveals how some are kind, but some are evil, like the ogre, Mulgarath.

The next day, Jared discovers a small creature, Thimbletack (Martin Short), and also learns that he enjoys eating honey. He sees Simon in the yard when suddenly, Simon is grabbed by invisible beings and dragged away. Thimbletack gives Jared the "seeing stone", enabling him to see the invisible, evil goblins carrying Simon away. Jared runs into the forest to look for Simon and finds a campfire with hanging cages around it. In one cage, he finds Hogsqueal (Seth Rogen), a hobgoblin who gives Jared the "Sight" so he can see the creatures without the stone. Simon is brought into the campfire, where an old man asks him if he knows who has the Field Guide. Simon goes back to the house to get it, and is confronted by Jared, who had seen the old man turn into Mulgarath. A goblin notices the twins fighting with the book in Jared's hand and warns the others. When they are attacked, the twins flee and retreat inside a circle of mushrooms surrounding the house, which serve as a barrier to the goblins. Mallory sees them return and is attacked by the invisible goblins but Jared gives her the stone and allows her to attack them as well and is able to get into the house with the twins. They retreat to the attic, where they climb onto the roof and discover that there are hundreds of goblins surrounding the house. They unanimously decide to burn the book to prevent the goblins from retrieving it.

The book hesitates to burn after several minutes of waiting and abandon their plan. When goblins surround the house, Simon suggests that they visit Lucinda at the asylum. Simon distracts the goblins, while Jared and Mallory take a shortcut to the city and are chased by a mole troll, whom they escape. They make it to the asylum, where they meet their great aunt Lucinda (Joan Plowright). She explains what happened to her father: Lucinda tells Jared and Mallory that Arthur is still alive, held captive in a sacred glade by the sprites. The goblins discover their location and attack them, ending in the book being ripped page by page by one of the goblins, who escapes with the knowledge of how to penetrate the mushroom circle's field. He returns it to Mulgarath in the forest, who plans to penetrate the circle when the moon goes down.

Back at the house, Simon discovers that Jared switched the field guide with a cookbook and is angered. Their mother arrives with authorities who tend to the fear-struck Lucinda while Helen takes the children home, but doesn't believe them when they explain what is going on. Jared and Helen get into an argument about the reason behind her and his father's divorce due to her yelling when she stops listening, which ends with Jared telling her he hates her and doesn't want to live with her, but then later regretted saying it when Mallory revealed that their father is not coming to get him because he has moved in with another woman. Once back at the mansion, Hogsqueal informs the children that the goblins received pages of the book and will destroy the circle tonight and then gives Simon and Mallory the Sight. Jared, still possessing half of the book, remembers how the field guide told of Arthur's pet griffin and uses chant used to summon it. He successfully summons the griffin and they fly to a secret glade, where they find Arthur Spiderwick, having not aged as the fairies use their abilities to perpetually keep him at the age he was when they first took him. Jared convinces Arthur to destroy the book, but they find that Thimbletack has switched it with the cookbook to keep the guide safe. Arthur tells Jared to return home and use the book to stop Mulgarath. Arthur then tricks the fairies into letting the children leave by telling them that he has the guide; he is mobbed by the fairies after they discover the ruse, refusing his allowance to leave. Jared decides to prepare the others to fight Mulgarath by providing them with weapons (mostly tomato sauce, which acts as an acid to goblins) and Jared convinces his mother the creatures are indeed real when Thimbletack appears before her.

Mulgarath and the goblins chase the Grace family through Spiderwick mansion. They conceal themselves in various parts of the mansion and ignite a flame, setting off the explosion. After destroying the goblins (including Red Cap) in an explosion of tomato sauce, Jared finds his father (a disguised Mulgarath) at the door. Jared asks his "father" what he was trying to tell him on the phone and he responds with "I just wanted to tell you that I love you." Jared sees through his ruse and stabs him in the chest causing him to revert back to Mulgarath. They go to the roof and Hogsqueal sees Jared climbing higher onto the roof to avoid Mulgarath and prepares. Mulgarath obtains the book and departs from the house, only to turn into a crow, fly towards a tree and get devoured and swallowed by Hogsqueal, who has an appetite for birds. Jared falls from the roof and after recovering, reconciles with his mother, who apologized for not believing him and together they join Simon and Mallory to gather the scathered pages of the guide on the ground.

A few weeks later, Lucinda is let back into the estate. Arthur appears, walking on top of a cushion of sprites, and confesses that he let Lucinda slip away from him, promising never to do so again. Telling her that if he steps off the pixies the aging charm would stop working and he would turn into dust, Lucinda instead chooses to go with him back to the glade, transforming back into a 6-year-old upon stepping foot on the sprites.

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