Sara-Kate is the tough-talking older girl who lives in the run down house behind Hillary's. Hillary is shocked when Sara-Kate extends an invitation to play in her trash-strewn backyard. She is even more surprised when Sara-Kate shows her the tiny elf village that exists in one part of the yard. Hillary's parents don't approve of their daughter playing with a girl from such a shabby background and her other friends are sure that Sara-Kate, who has a reputation for bad behavior, is creating the village herself. But as more features are added to the elf colony (a swimming pool, a Ferris wheel), Hillary feels compelled to keep visiting.
The girls slowly begin to develop a friendship, though it is based entirely on the supposed existence of the elves. Sara-Kate doesn't mention anything about herself or her family and never invites Hillary into her house. Hillary notices little things about Sara-Kate's life that don't add up, however, like how she doesn't seem to own a jacket on the coldest days and the fact that she is forced to run errands for her mother that are usually reserved for grown ups. Hillary catches a glimpse of Sara-Kate's mother in a window once, and the image of the pale, thin woman's face frightens her.
Hillary's mother hints that she'd like Hillary to spend less time in Sara-Kate's yard. Hillary complies with this, and it's not long after that Sara-Kate seems to disappear. She's absent from school and isn't in her usual spot by the elf village when Hillary comes over. The elves' homes and playground fall apart in the absence of the girls' constant attention.
Sara-Kate's house seems unoccupied and Hillary works up the courage to go inside. She is astounded by how bare and trashy the inside of the house is. She continues her perusal of the house by going upstairs because in her childish mind, the elves abandoned their outdoor colony and came to live in Sara-Kate's house. The house appears to be shut down with the electricity and heat turned off, and Hillary can't imagine a person living in this condition. But in an upstairs room, expecting to catch an elf, Hillary instead walks in on Sara-Kate sitting in a rocking chair holding her mother. Sara-Kate threatens Hillary's life, commanding that she tell no one what she has seen.
Out of a misguided sense of loyalty, Hillary honors this request. Two weeks pass by and Sara-Kate is seen only once, by Hillary's father as he's driving home late one night. The night Hillary's father tells her about this incident, she sneaks out and sees Sara-Kate tinkering with the elf village. The girl claims she was away and has temporarily come home.
Hillary begins imagining that Sara-Kate is one of the elves herself. One day Sara-Kate asks Hillary to find some money without telling anyone and to buy some food for her ill mother because they are out of everything. Hillary steals money from her mother and sneaks off to the grocery store. When she comes back, she and Sara-Kate dine on baloney sandwiches and Sara-Kate confesses what the reader has probably already guessed - that she basically runs the household because her mother is sick and often not in her right mind.
Suddenly, Hillary's mother arrives at Sara-Kate's door looking for her daughter. She sees the horrible condition of the living room and demands to meet Sara-Kate's mother. Like any responsible adult, she turns the matter over to the authorities. As the weeks go by, gossip about Sara-Kate and her mother swirls through the neighborhood, only fueled by the not-always-accurate local news reports of the story. Hillary's mother questions whether Sara-Kate really cared about Hillary or if it was a friendship of convenience for her. This issue is never really resolved and we don't find out the full story about what happened to Sara-Kate.
This is not only a story about a girl who is being neglected, but is also about a child's loss of innocence. As the book reaches its conclusion, Hillary must let go of her childish fantasies and realize that what she had seen as magic was in reality a very ugly situation.