The Princess and the Goblin by George MacDonald

Eight-year-old Princess Irene lives a lonely life in a castle in a wild, desolate, mountainous kingdom, with only her nursemaid, Lootie for company. Her father the king is normally absent attending to affairs of state, and her mother is dead. Irene has never known about the existence of the goblins which lurk in the underground mines but her nursemaid Lootie does know about them.