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The presence of dwarfs in the manifest content of a dream of a patient whose father-in-law had just died provides the clinical material of this paper. The dream successfully mastered the anxiety, principally arising from oral problems, which the father-in-law's death had aroused. The comforting thought the dream provided was 'You can rest, you don't need to worry, the little people will protect you and work for you.' Squirrels had supplied the day residue for the dream. The author suggests that the myth of the little people so widespread in northern and middle European countries is due to a denial and transformation of the anxiety caused by different varieties of rodents who were a constant danger to the food supply. The myth turns the hated and feared creatures into helpful and friendly little beings. This material alone could not form the myth. While the fear of rodents both in the dream and in the myths formed the preconscious stimulus (the day residue) the unconscious element arises from the ambivalent relationship towards ancestors and children. This conflict was given prominence by the death of the patient's father-in-law.