The Grace children visit their Great-Aunt Lucinda, who is now in a psychiatric hospital. When they speak to her, they learn more about the world of faerie creatures, the Field Guide, and its author, Arthur Spiderwick, who was Aunt Lucinda's father. Arthur had disappeared when Lucinda was still a little girl and the Grace children later find out where he disappeared to when they stumble upon a forest of elves. On their journey they meet Stray-Sods, grass that can move, and a Phooka, a strange creature that talks only in riddles. Jared is captured by the elves, but tricks them into making a pact so that Simon will be trapped instead of him. They all manage to escape, but only by promising them that they will bring the field guide to them when it is found.

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