The story is told from the point of view of the elderly Alice (now the widowed Mrs Hargreaves) as she travels to the United States from England to receive an honorary degree from Columbia University celebrating the centenary of Lewis Carroll's birth. It shares common themes with Potter's television play Alice (1965).
The film evolves from the factual to the hallucinatory as Alice revisits her memories of the Reverend Charles Dodgson (Holm), in Victorian-era Oxford to her immediate present in Depression-era New York.
Accompanied by a shy young orphan named Lucy (Cowper), old Alice must make her way through the modern world of tabloid journalism and commercial exploitation while attempting to come to peace with her conflicted childhood with the Oxford don.
The film begins on the ship bearing Alice (Coral Browne) and Lucy from England to New York City. As she and Lucy (Nicola Cowper) disembark, they are set upon by several journalists, all trying to get a story or quote from her. Clearly bewildered by all the excitement, she is befriended by an ex-reporter, Jack Dolan (Peter Gallagher), who helps her and Lucy through the legions of the press. Dolan quickly becomes her agent and finds endorsement opportunities for her. Throughout it all, a romance develops between Jack and Lucy.
But all is not well with Alice. Being so advanced in age, she needs Lucy, of whom she can be very demanding, to be her constant companion. When left alone in their hotel room, she begins to hallucinate and sees Mr. Dodgson (Ian Holm) in their room, and then, later, the Mad Hatter (voiced by Tony Haygarth) and March Hare (voiced by Ken Campbell). Joining them for their insane tea party, they berate her for being so old and forgetful. She remembers also the lazy boating party of 4 July 1862, when the young Reverend Charles Dodgson, (Lecturer in Mathematics at Christ Church, Oxford, where her father was the Dean), had attempted to entertain her and her sisters by spinning the nonsense tale that grew to be Alice's Adventures in Wonderland.
Via flashbacks, it is insinuated that Dodgson had an infatuation with the young Alice Liddell (Amelia Shankley). Was it an innocent admiration he had for the girl or something inappropriate? Alice is clearly troubled by her recollections of Dodgson. The parameters of her relationship with him were somewhat tortured. Dodgson was unwaveringly adoring of Alice, and while she was usually kind, she could sometimes be cruel and mocking of him, especially of his occasional stutter – as on the day of the boating party when she was on the verge of her teens and trying to impress a couple of young students (one of whom she eventually marries). Alice tries to rectify her feelings and past relationship with the author in her mind.
By the time she delivers her acceptance speech at Columbia University, she comes to terms with Dodgson and the way she treated him. In another fantasy sequence with the Mock Turtle, the viewers see them finally reconciled together in a way that can be interpreted as all-encompassing, as both mutual apology and forgiveness.
Makeup and creature effects for the film were created by Jim Henson's Creature Shop. Six complexly detailed creatures, rather malformed, as they are in the book, were made. The Gryphon and the sorrowful Mock Turtle live among ledges of rock on a darkling seashore. The March Hare has broken yellowish teeth and soiled looking whiskers and he seems to be chewing even while he's speaking. He, the Mad Hatter, and the Dormouse, and the Caterpillar too, ' converse in the same matter of fact, egalitarian manner that the visiting Alice does.'
Puppet movement and choreography was developed by American actress and choreographer Gates McFadden. Due to a problem with work visas, McFadden was unable to receive full credit in this film.
The Chinese costume sequence in the film depicting Dodgson taking Alice's portrait at Oxford is based on actual photographs he took of her and her sisters. Dodgson, an early pioneer of photography, was considered one of the world's first portrait photographers.
Dennis Potter's use of pop entertainment of the 1930s in his works is present in this film. "I Only Have Eyes for You" is sung at a tea dance at the Waldorf Astoria and Mrs. Hargreaves has a scene at a radio station that includes a crooner's rendition of "Confessin'".
The Depression-era setting of the film is in 1932, when Alice turned 80, two years before she died in 1934.
According to director Gavin Millar, the film's producer, Verity Lambert, "never wanted the dean, Alice's father, to be [played by] Nigel Hawthorne," actively but unsuccessfully opposing him cast in the role. Millar later recalled, that during the editing process, "every scene with Nigel in it, she was down on it like a ton of bricks. And she gradually cut him out and out and out of every scene," so the director eventually had to edit out Hawthorne's part completely. The film's score was composed by Stanley Myers.
The film was reviewed favourably by the critic Pauline Kael who praised the performances. "Nothing I've seen Coral Browne do onscreen had prepared me for this performance. In the past she seemed too bullying a presence; she was too stiffly theatrical for the camera and her voice was a blaster. Here, as Mrs. Hargreaves, she has the capacity for wonder of the Alice of the stories, and when she's overtaken by frailty her voice is querulous and fading." "The bright, poised, subtly flirty Alice at ten [is] played by Amelia Shankley, whose conversations with her sisters have an angelic precision. The sound of these imperious little-princess voices blended in idle chitchat is plangent, evocative. It makes you happy and makes you respond to the happiness of the Reverend Mr. Dodgson as he loiters outside the little girls' windows, eavesdropping." "Ian Holm, who plays Dodgson, has to achieve almost all his effects passively, by registering the man's acute and agonizing self-consciousness and his furtive reactions to what goes on around him; it's all there in Holm's performance."
Andrew Sarris's review in The Village Voice was titled "the Film That Got Away." Sarris wrote that the film "gets infinitely better as it goes along, rising inexorably towards a rich epiphany" and resisting "facile irony". He wrote, "what makes the film so rousing and inspiring is its invocation of love and art as redemptive forces pitted against the dark spirits."
In an article published many years later, in 2014, in the film magazine Sight & Sound, Philip Horne expanded on the relative obscurity of Dreamchild and wrote that it "remains a film worth fighting for."
Coral Browne received the Best Actress Evening Standard British Film Award for her performance.