The author presents a patient's dreams in which the imagery is reminiscent of the myths of the 'little people', such as gnomes and elves. In the formation of this dream, the day residues that formed the preconscious stimulus were intruding external figures (children and squirrels). The unconscious cathexis was derived from ambivalent feelings toward dead and living rivals. These figures were felt as threats, primarily to oral gratification. The dreamwork, by denial and transformation, changed these malevolent figures into helpful, beneficent ones. The author postulates that in the creation of various myths of 'little people' the food supplies of poor people, among whom such myths prevailed, were threatened by external intruders (rodents and children), which formed the preconscious stimulus. When this was re-enforced by the unconscious cathexis of ambivalent feelings toward past ancestry and future generations, the myth could be formed. As in the dream, so in the myth; anxiety is allayed by turning the malevolent into the beneficent.