In 2001, Mexican writer-director Guillermo del Toro ingeniously melded a tale of supernatural horror with the real-life carnage of the Spanish Civil War in the brilliant and haunting The Devil's Backbone. With Pan's Labyrinth, del Toro returns to that bleak period with a concept even more daring: a Grimm's fairy tale/Alice in Wonderland hybrid placed amidst the battle between rural guerrillas and the ruthless army of Francisco Franco. The fantasy elements are wild and dark, but no more savage than the reality-based cruelties visited upon the innocent and guilty alike in this highly original and beautifully crafted movie.

The film's Alice surrogate is Ofelia, a young girl who journeys with her pregnant mother Carmen to a home in the country with her new stepfather, army captain Vidal. That home is an abandoned mill serving as military headquarters for Vidal and his ruthless troops. The stern captain takes little interest in his stepdaughter, who finds refuge in a nearby garden labyrinth, where she makes friends with a flying mantis-like insect that transforms into a tiny winged man. She's brought before the Faun, a half-man/half-ram, who tells Ofelia she is a princess who has crossed over from the underground world to the realm of humans. To get back home, he informs her, she must complete three perilous tasks.

Those challenges include confronting a grotesque giant toad and eluding the dreaded Pale Man, a lanky spectre with eyeballs in his hands. But Ofelia's underworld adventures pale compared to the horrors of the ongoing war she witnesses firsthand. Vidal and his minions think nothing of bludgeoning an innocent hunter into bloody pulp, or shooting a suspected traitor when his back is turned. In del Toro's ingenious screenplay, Ofelia's struggle against the iron rule of her brutal stepfather and all he represents is no less grotesque or harrowing than her odyssey in a bizarre fantasy world that may or may not be of her own making.

Del Toro, production designer Eugenio Caballero, visual effects supervisor Everett Burrell and makeup effects man David Martí conjure up some wondrously witty creatures and environments, but Pan's Labyrinth is no movie for kids. This fairy tale puts the grim back in Grimm, with carnivorous fairies, mood-swinging fauns, and several shocking fatalities. Ofelia may retreat to fantasy, but it's no real escape from the harsh injustice surrounding her; eventually, the two worlds become one. Justice is meted out, but the price that is paid is high.

Eleven-year-old Ivana Baquero carries the pivotal role of Ofelia with pluck, intelligence and an effortless belief in the story's fantastical creatures and events. Pan's Labyrinth also features three leading Spanish actors at the top of their game. Sergi López (Dirty Pretty Things) manages to be scarily intimidating as the sadistic Vidal without ever crossing the line to melodramatic excess; it's as if evil is second nature to him. Maribel Verdú (Y Tu Mamá También) is feisty and fiery as the housekeeper who's secretly working with the rebels. And Ariadna Gil (Belle Epoque) is heartbreaking as Ofelia's beautiful but emotionally and physically fragile mother. Doug Jones, who has played strange creatures in del Toro's Mimic and Hellboy, again turns in yeoman work as both the Faun and the Pale Man.

Pan's Labyrinth includes among its producers Alfonso Cuarón, who directed one of the best Harry Potter films and has the eagerly anticipated Children of Men also opening in December. Cuarón, del Toro and Alejandro González Iñárritu (Babel) represent an extraordinary, unprecedented new fraternity of gifted Mexican directors, and Pan's Labyrinth is another jewel in a fast-expanding line of movie gems.