Barbie and her little sister Kelly practice ballet steps, but Kelly cannot master them. Upset, Kelly gives up, but Barbie tells her about Clara, a brave girl. At Christmas, Clara receives a Nutcracker doll from her Aunt Elizabeth. Clara falls asleep in her parlor with it but the parlor is invaded kwa a panya, kipanya King and his army, searching for the Nutcracker. Nutcracker comes to life and fights, but when Clara tries to help she is shrunk. When the army retreats, thanks to Clara hurling her shoe at the panya, kipanya King, Nutcracker tells her he only looks like a Nutcracker because of the panya, kipanya King. Both victims of the evil king's magic, they have to find the Sugar plum Princess, the most powerful faerie in Parthenia.