The character known as the Dwarf is a supernatural being encountered by Nils Holgersson on his family's farm. After Nils attempts to capture and toy with him, the Dwarf responds with a magical punishment that shrinks the boy to a very small size, roughly that of a dwarf. This transformation grants Nils the ability to communicate with and understand animals.

The Dwarf’s actions set the plot into motion. Now vulnerable to the animals he once tormented, Nils is forced to flee the farm by clinging to a domestic gander that joins a migrating flock of wild geese. The Dwarf does not state the condition for reversing the transformation and does not reappear physically throughout the subsequent adventures.

This transformation serves as the catalyst for Nils's personal journey. The experience leads to a profound change in his character, transforming him from a lazy and cruel individual into a mature and caring person who earns the respect and love of the animal companions he meets. The Dwarf remains a figure whose background and motivations are not elaborated upon.