During the cold winter, Karen, a poor girl, is trying to sell matches on the street, but nobody wants to buy any. She observes a party of some wealthy people through the window and gets hit with snowballs from some kids. But a policeman shows up and chases them away, saving her. Not daring to go home since she didn't sell a single match, she stays on the street and falls into a dream world full of puppets in a castle. She meets a nice soldier, but then death appears and chases them on a horse through the clouds. Some time later, people find her frozen on the street.