Based on the classic 19th century tale by German writer/composer E.T.A. Hoffmann, the film investigates the tale's themes of obsession and madness, emphasizing expressionist imagery and theatrical style. The story relates the life of the young student Nathanael, whose childhood memories are haunted by a sinister man. As a child, Nathanael believed this dark figure to be the mythic Sandman, who puts children to sleep by stealing their eyes. When confronted by this same evil presence as an adult, he is pushed toward madness as he tries to confront his childhood fears.

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