It was based on a 1936 book by Upton Sinclair entitled The Gnomobile. Walter Brennan gives a double performance as D.J. Mulrooney, the kind-hearted lumber tycoon of Irish descent; and as the irascible 943 year-old gnome Knobby. The children, Elizabeth and Rodney, were played by Karen Dotrice and Matthew Garber, familiar from their roles as Jane and Michael Banks in Mary Poppins. Tom Lowell who plays the young gnome Jasper in this movie, also appeared in the 1965 Disney film That Darn Cat! as Canoe, the befuddled surfer boy-friend of Hayley Mills. The Gnome-Mobile was Matthew Garber and Ed Wynn's last movie as Garber died ten years later and Wynn died before the movie was released.
The story opens with the children's grandfather, D.J. Mulrooney (Walter Brennan), a well-known executive officer of a vast timber-trading company. D.J., an eccentric and passionate man with a distinctive snore, as well as vast dedication and determination, has bought up a preserve of ancient virgin forest to show his descendants the majesty of the Redwood trees. In order to meet with business clients in Seattle, D.J. takes his personal, customized 1930 Rolls-Royce Phantom II on a trip, picking up his grandchildren Elizabeth (Karen Dotrice) and Rodney (Matthew Garber). Mulrooney takes them to a part of his forest en route. In a brief conversation with his Company Head of Security, Ralph Yarby (Richard Deacon), we learn that the car was purchased after D.J. earned his first US $1 million.
In the forest, Elizabeth encounters a gnome called Jasper (Tom Lowell), who is desperately seeking a bride for himself, but cannot find any functional gnome communities remaining. Elizabeth, touched by the trusting gnome, agrees to help him find one. She brings her unbelieving grandfather and brother to the same spot, and Jasper makes a reluctant reappearance. The three are introduced to Jasper's 943-year old grandfather Knobby (also Walter Brennan) who, like D.J., is passionate and short-tempered. Knobby is temporarily suffering from a sickness called "fading", he is becoming semi-transparent periodically because he's losing the will to live. The reason for this is that he fears that he and Jasper are the last two of their kind; and he too wants Jasper to find a bride before he, Knobby, dies. Knobby harbors immense hatred for humans because of their damage to the forests and the livelihood of gnomes, but agrees to go along and seek other gnomes because of Jasper's insistence. As they leave together, the Rolls-Royce is affectionately named by the children "the Gnome-Mobile."
Trouble begins, however, when Knobby discovers that D.J. is responsible for logging. The two elders quarrel until D.J., infuriated, vows to take the two gnomes back to the forest. Jasper and his grandfather are kidnapped by Horatio Quaxton (Sean McClory), a freak show owner, while D.J. is committed to an asylum by Yarby, who has heard about the gnomes and deems his boss insane. Rodney and Elizabeth rescue D.J. (using the "Gnome-Mobile"). D.J. tumbles out of his window at the asylum and narrowly escapes. The children and D.J. find Quaxton's cabin, rescue Jasper from Quaxton, and then set out to find Knobby (who managed to escape earlier at Jasper's insistence).
Yarby, on finding that D.J. has escaped, mounts a personal pursuit. His company-owned 1958 Cadillac (apparently a customized Fleetwood 75) is literally broken to pieces by the rough going, while the durable Rolls-Royce with D.J.'s skillful and daring driving manages to get away undamaged.
They arrive in the woods to find Knobby delighted with the presence of a thriving community of gnomes. Jasper is disappointed that they are all old men, but is then recognized by Rufus the Gnome King (Ed Wynn) as "the eligible gnome", to a large number of young females of his race, who then compete in a contest to determine which one will marry him. The bachelor is covered in soap, then set upon by the girls, who try to chase after him, and catch and hold onto him for seven seconds. Jasper didn't know that this was how he would find a mate; to be the "prey" in a wild chase. He is smitten with one lovely, timid girl-gnome named Shy Violet (Cami Sebring). However, after a very wild chase by some very aggressive other girl gnomes, Jasper and Violet manage to end the race the way they want it.
D.J., for his part, gives as a wedding-present the rights to several acres of forest, which become a haven in perpetuity for the gnomes.
Walter Brennan – D.J. Mulrooney/Knobby
Matthew Garber – Rodney
Karen Dotrice – Elizabeth
Richard Deacon – Ralph Yarby
Tom Lowell – Jasper
Sean McClory – Horatio Quaxton
Ed Wynn – Rufus the Gnome King
Jerome Cowan – Dr. Ramsey
Charles Lane – Dr. Scoggins
Norman Grabowski – Male nurse
Gil Lamb – Gas attendant
Maudie Prickett – Katie Barrett
Cami Sebring – Violet
Many of the same type of special effects used for this movie were also used in Disney's earlier 1959 film Darby O'Gill and the Little People.