Hoffmann's story starts, like the ballet, with the young heroine and her brother Fritz eagerly awaiting Christmas Eve festivities. The original name is Marie-she's become Clara in many versions, and interestingly Clara was Marie's Christmas doll. They also have an older sister Louise, who has been forgotten, but her character's not very important anyway.
Christmas Eve does not bring a large party with many guests, but a small family gathering, complete with Godpapa Drosselmeier, who brings them a castle he made with mechanical pieces, the genius of which is rather lost on the children. An ugly nutcracker soldier doll was discovered among the gifts, "but Marie remembered that Godpapa Drosselmeier often appeared in a terribly ugly morning jacket, and with a frightful-looking cap on his head, and yet was a very very darling godpapa." Marie "had quite fallen in love with at first sight" this ugly man. Fritz did break the Nutcracker, but not out of spite-he simply broke him trying to crack an extremely large nut. Marie was terribly upset, and Godpapa Drosselmeier laughed at her for being so concerned with such an ugly man.
That night Marie begged to be allowed to stay up a little longer to take care of her dolls. Her mamma allowed this, and as the clock struck, she saw Godpapa Drosselmeier on top of the clock, and heard the screeching of many mice. Marie was not afraid of mice, but when she saw the Mouse King with seven heads, she became frightened. Fritz' toy soldiers followed the Nutcracker out of the cupboard-note that they do not grow to life-sized proportions (which makes more sense when the throwing of a shoe causes so much distress to the Mouse King). The Nutcracker rejected a token of affection from Marie's doll Clara, since he already treasured above all else the ribbon Marie had tied around his wound. After a perilous battle, in which the Nutcracker's troops were forced to retreat and the Nutcracker in grave danger, Marie threw her left shoe straight at the King and fell senseless to the floor.
Marie woke the next morning in bed. She had cut her arm on the glass of the toy cupboard the night before and had a fever. Her parents did not believe her story of the toys and mice, but she heard a voice telling her, "Marie! Dearest lady! I am most deeply indebted to you. But it is in your power to do even more for me."
Godpapa Drosselmeier appeared, and Marie accused him of not being of any help in the battle. At first he answered very mysteriously in a way that made her parents uneasy, but after laughing at their response to his "Watchmaker's Song," he produced a Nutcracker to Marie that he had fixed, and told Marie and Fritz the Story of the Hard Nut, over a succession of nights.
In a kingdom was born a Princess named Pirlipat that had strong teeth and could bite anything as soon as she was born. Her parents adored her. One day as the Queen was making sausages for the King, the Queen of Mice asked for a bit of the browned fat. The Queen assented, but was soon troubled by all the friends and relations of the mouse Queen, and the sausage had very little fat in it. The King was very upset by all this and ordered mousetraps put all over the palace. This was done by the Clockmaker, Christian Elias Drosselmeier. The Queen was too clever to be caught in a trap, but she lost her family, including seven sons, and cursed Pirlipat with ugliness-an enormous head on top of a crumped up body, wooden eyes, and a mouth that stretched from one ear to another.
The Clockmaker, Drosselmeier, found through the Princess' horoscope the solution to the curse-to eat the kernel of the nut Crackatook, cracked in the Princess' presence by the teeth of a man whose beard had never known a razor, and who had never worn boots, and must take seven steps backwards before handing the kernel to the Princess. Drosselmeier traveled the world in search of the nut and the man destined to crack it, with no success. Finally he returned home to Nuremberg, where the solutions turned out to be in his own family-his cousin had the nut Crackatook and his cousin's son fit the exact description of the man needed to crack it.
The young Mr. Drosselmeier returned with the Clockmaker to the kingdom, where he performed his duty, but on the seventh step he took backwards, he was tripped by the Mouse Queen, cursing him with the ugliness that had been Pirlipat's and to remain that way until he slew the Queen's son with seven heads, and until a lady should fall in love with him despite his deformity (see? I told you it was just like Beauty and the Beast...)
Not long after Marie was told the history of her Nutcracker, the Mouse King-who had survived the battle-began to blackmail her for her treats and Christmas presents, threatening to chew the Nutcracker to dust if she didn't do as he said. With a heavy heart, Marie sacrificed her beautiful things- until the Mouse King wanted her picture books and dresses. The Nutcracker pleaded with her not to sacrifice any more for him, but to provide him with a sword. Fritz gives the Nutcracker one of his retired Colonel's swords, and the Nutcracker is equipped. That night the Nutcracker appears to Marie, and gave her the seven crowns of the Mouse King, who has finally been vanquished.
The Nutcracker takes her through a ladder in the wardrobe to fantastic lands like Christmas Wood and the metropolis of Sweetmeatburgh (a land where their name for God is "Pastrycook"), where he tells his subjects of Marie's loyalty and help in his victory. They are all grateful and invite her to pound sugar-candy with them, which she does until she falls asleep.
Once again her parents are not convinced, even when Marie shows them the seven tiny crowns (Drosselmeier claims he gave them to her on her second birthday). Even Fritz doubted the story (that, plus the wardrobe, reminded me of Narnia). It wasn't until Marie told the Nutcracker, "Ah, dear Mr. Drosselmeier, if you really were alive, I shouldn't be like Princess Pirlipat and despise you because you had had to give up being a nice handsome gentleman for my sake!" that there was a tremendous bang and there was Godpapa Drosselmeier with his nephew from Nuremberg, who thanked Marie for freeing him from the spell and asked her to be his Queen in Marzipan Castle, to which she agreed. They were married in a year and a day, which is somewhat disturbing, considering she was only seven at the story's beginning.