A lonely old woman who has been longing for a child has her wish granted by a good witch, who gives her a seed and tells her to plant it. When she does, it blossoms to reveal a tiny girl the size of a thumb. The woman aptly names her Thumbelina. Thumbelina quickly discovers her small size creates difficulty for her and causes her to feel isolated. One night, her mother tells her about fairies - tiny winged beings of Thumbelina's size. Later, the fairy prince, Cornelius, stumbles upon Thumbelina after hearing her beautiful singing. He introduces himself and the two quickly fall in love while taking a ride on his bumblebee. They promise to meet the next day. However, Mrs Toad, who heard Thumbelina's singing while the two were out, kidnaps her from her bed that night.
Thumbelina awakens on the Toad's show boat. Mrs. Toad wants Thumbelina to join their troupe and marry her eldest son, Grundel, who is in love with her. They leave her on a lily pad while going to fetch a priest, but a friendly swallow, Jacquimo (the narrator of the film), overhears Thumbelina's cries for help and frees her. Jacquimo's friends, the jitterbugs, promise to help Thumbelina get home safely while Jacquimo sets off to find Cornelius. Meanwhile, Cornelius learns of Thumbelina's kidnapping and ventures out to find her.
While trying to get home with the help of some young jitterbugs, Thumbelina is ambushed by Berkeley Beetle, who scared the jitterbugs off. He's enamoured with her and her singing, and agrees to show her the way home, provided that she sing at his Beetle Ball first. She is well received by the bugs, until the costume disguising her as a butterfly falls off, at which point they declare that she's "ugly". Beetle's opinion of her swiftly changes and he kicks her out without giving her the help he promised. Both Jacquimo and Cornelius are incapacitated by the weather: Jacquimo accidentally impales his wing on a thorn and is eventually knocked out by the extreme cold, while Cornelius falls into a lake and is frozen under the ice. Grundel, hearing one the jitterbugs mention Beetle, tracks him down. Beetle suggests using Cornelius the fairy prince as bait. Grundel blackmails him (by stealing his wings) into helping him get Thumbelina back. Beetle and his men find Cornelius trapped in the ice and take him back to Grundel.
Thumbelina almost freezes to death, until she's found and taken in by Miss Fieldmouse. Miss Fieldmouse informs her of Cornelius's supposed demise, saddening Thumbelina too greatly. The two take some corn cakes to Miss Fieldmouse's neighbor, Mr. Mole. Mr. Mole tells them about a dead bird he found in his tunnel earlier that day. It turns out to be Jacquimo, who Thumbelina discovers to be only unconscious. Mr. Mole confides to Miss Fieldmouse that he would like to marry Thumbelina and will pay her handsomely if she gets the girl to agree. Thumbelina, heartbroken over Cornelius's death, accepts. Jacquimo soon awakens and leaves to find Cornelius, refusing to believe that he is dead. Meanwhile, Beetle brings Cornelius's frozen body to Grundel and informs him that Thumbelina is going to marry the Mole. After the two leave to stop the wedding, the jitterbugs thaw Cornelius's body out.
As she's going up the aisle, Thumbelina realizes that she can't marry someone she doesn't love. As she refuses, Grundel and Beetle crash the wedding. A chase ensues, with Beetle, Grundle, and the wedding guests trying to stop Thumbelina from getting away. Cornelius appears and fights with Grundel until the two fall into a chasm. Once outside and free, Thumbelina is reunited with Jacquimo, who insists he's found the Vale of the Fairies. He takes her to what looks like a frozen patch of weeds and tells her to sing, which she grudging does. As Thumbelina gives up hope, the ice thaws and Cornelius appears. The two marry, and at the wedding Thumbelina is granted wings and became a fairy princess. Thumbelina and Cornelius live happily ever after.
The closing credits show illustrations depicting the fates of the other characters, indicating that Beetle got his wings back, Grundel survived the fall and married a female toad (who is as ugly as him), Mr. Mole and Mrs. Fieldmouse married, and the rabbit and fox that Jacquimo asked for help earlier settled their differences.
The distribution rights are owned by 20th Centery Fox.