When a prophecy states that a female child with a special birthmark will herald the downfall of the evil sorceress Queen Bavmorda, she imprisons all pregnant women in her realm to prevent its fulfillment. When the child is born, the mother begs the midwife to smuggle the infant to safety. The midwife reluctantly accepts and leaves Nockmaar Castle unnoticed. The mother is executed; the midwife is hunted down and eventually found. Knowing she cannot escape, the midwife sets the baby on a makeshift raft of grass and sends her down a river before being killed by Nockmaar hounds. Bavmorda, furious about the escape, sends her daughter Sorsha and her army's commander, General Kael, to find the baby.
The baby drifts downriver to a village of Nelwyn (dwarves) and comes into the care of Willow Ufgood, a kind farmer and conjurer with hopes to become a real sorcerer. Willow's wife Kiaya and his children fall in love with the baby immediately, and Willow, after some resistance, quickly grows to love her as well. The next day the village is attacked by a lone Nockmaar hound; after the village warriors kill it, they deduce it was after a baby. Willow reveals the baby to the High Aldwin, the village sorcerer, who declares the child is special and that she must be taken back to the Daikini (humans).
Willow, due to his love for the child, is selected to accompany the party of volunteers in returning the baby. At the Daikini Crossroads, they find a human warrior named Madmartigan trapped in a crow's cage. While the rest of the party wants to give the baby to Madmartigan and go home immediately, Willow and his friend Meegosh refuse, so the others leave. After spending the night at the crossroads and meeting an army led by Airk Thaughbaer, an old friend of Madmartigan's marching against Bavmorda, Willow reluctantly decides to free Madmartigan and hand the baby over to him.
As Meegosh and Willow are headed home, they find the baby was stolen by a group of Brownies. They chase the Brownies and are trapped, but are rescued by the Fairy Queen Cherlindrea. Cherlindrea tells Willow that the baby is Elora Danan, the future empress of Tir Asleen, and Bavmorda's bane. She gives Willow her wand and assigns him the task of helping Elora fulfill her destiny. Willow sends Meegosh home, and two of the Brownies, Franjean and Rool, are assigned to help Willow find the sorceress Fin Raziel. The three of them find Madmartigan at a tavern, where he is disguised as a woman to hide from Llug, a cuckolded husband. Sorsha arrives and reveals his identity; Llug, furious upon the realization that Madmartigan is not a woman, starts a brawl, allowing Willow, Madmartigan, and the brownies to escape. Madmartigan guides them to the lake where Raziel lives before departing.
