Labyrinth started as a collaboration between David Lynch and Brian Froud, with ideas for the film first being discussed between them following a screening of The Dark Crystal. Terry Jones from Monty Python wrote the first draft of the film's script early in 1984, drawing on Brian Froud's sketches for inspiration. Various other script-writers, including Laura Phillips (who had previously written several episodes of Fraggle Rock), George Lucas, Dennis Lee, and Elaine May, subsequently re-wrote and made additions to the screenplay, although Jones received the film's sole screen-writing credit. Labyrinth was shot on location in Upper Nyack, Piermont and Haverstraw in New York, and at Elstree Studios and West Wycombe Park in the United Kingdom.
Labyrinth had a budget of $25 million. It was a box office disappointment and only grossed $12,729,917 during its U.S theatrical run. The commercial failure of the film demoralized Henson to the extent that his son Brian Henson remembered the time of the film's release as one of the most difficult periods of his father's career. It would be the last feature film directed by Henson before his death in 1990.
Although it was met with a mixed critical response upon its original release in the summer of 1986, Labyrinth has since gained a strong cult following and tributes to it have been featured in magazines such as Empire and Total Film. A four-volume manga sequel to the film, entitled Return to Labyrinth, was published by Tokyopop between 2006 and 2010. In 2012 Archaia Studios Press announced they were developing a graphic novel prequel to the film.
The film opens with a barn owl watching a teenager, Sarah (Jennifer Connelly), reciting lines from a play called The Labyrinth in a park. As Sarah struggles to remember the final line of her monologue, the town clock chimes seven o' clock and Sarah remembers she has to babysit her brother Toby. She rushes home and has a confrontation with her impatient stepmother.
Following her parents' departure Sarah realizes that her teddy bear, Lancelot, is missing from her room. She finds the toy in Toby's room and resentfully declares a wish that the goblins would take the baby away. Abruptly, Toby vanishes and a barn owl flies into the room, transforming into Jareth: King of the Goblins (David Bowie). Jareth tells Sarah that he will return her brother if she can solve his Labyrinth within thirteen hours. He transports Sarah and himself to the Labyrinth, then leaves Sarah to start her quest.
At the entrance of the Labyrinth, Sarah meets Hoggle, a grumpy and obstinate dwarf who refuses to help her. She advances through the labyrinth alone and overcomes a series of obstacles during her journey, including a Knights and Knaves logic puzzle, before eventually trapping herself in an oubliette. Jareth sends Hoggle into the oubliette to free Sarah and misdirect her back to the beginning of the labyrinth.
As they travel Sarah and Hoggle encounter a group of goblins tormenting a gentle beast named Ludo, whose roars frighten Hoggle and lead him to flee. Sarah saves Ludo and travels with him but the two become separated. A group of revelers with detachable limbs called the Fire Gang harass Sarah until Hoggle reappears to rescue her. Shortly afterward they pass through the Bog of Eternal Stench where they are reunited with Ludo and add another to their party: Sir Didymus, a chivalrous, fox-like knight who guards the bridge that leads away from the bog.
Hoggle offers Sarah a peach that Jareth had ordered him to give her. Upon biting the peach, Sarah falls into a trance and finds herself in a dream-like ballroom where Jareth attempts to seduce her. The sound of a striking clock reminds Sarah that she needs to save her brother and she frees herself from the vision to resume her quest. She rejoins Ludo and Sir Didymus, and the three of them approach the Goblin City that surrounds Jareth's castle. Hoggle appears and disables a giant robot that guards the city gate. Sarah forgives Hoggle for his earlier betrayal and continues with all her friends through the city, successfully defeating the soldiers of the goblin army who have been sent to stop them.
Upon reaching Jareth's throne room, Sarah decides to go forward alone. She finds Jareth and Toby in a vast, stair-filled room, (inspired by M. C. Escher's Relativity), and attempts unsuccessfully to find a path to reach her brother. She is interrupted by Jareth, who confronts her face-to-face and asks her to abandon her quest in order to stay with him forever. Sarah recites the complete monologue from the beginning of the film, concluding with the formerly elusive line, "You have no power over me."
Jareth, acknowledging defeat, returns Sarah and Toby to their home. Sarah discovers she can see Hoggle and the rest of her friends in her bedroom mirror. Sarah tells her friends she needs them, summoning them into her room. The film closes as Sarah and the creatures celebrate her victory. Outside the bedroom window, a barn owl briefly watches the party before flying away.
- David Bowie as Jareth the Goblin King, the ruler of the Goblins.
- Jennifer Connelly as Sarah Williams, a 15-year-old girl who journeys through the Labyrinth to find her baby brother.
- Toby Froud as Toby Williams, Sarah's baby brother.
- Christopher Malcolm as Robert, Sarah and Toby's father.
- Shelley Thompson as Irene, Toby's mother and Sarah's stepmother.
- Natalie Finland as the Labyrinth Fairies, a bunch of deceitful barefoot fairies that reside in the Labyrinth.
- Shari Weiser and Brian Henson as Hoggle
- Ron Mueck and Rob Mills as Ludo
- Dave Goelz and David Barclay as Sir Didymus
- Steve Whitmire and Kevin Clash as Ambrosius
- Frank Oz as The Wiseman
- Karen Prell as The Worm, Firey #2 and The Junk Lady
- Kevin Clash as Firey #1, and One of the Four Guards
- Dave Goelz as Firey #3, One of the Four Guards, The Wiseman's Hat, and Left Door Knocker
- Steve Whitmire as Firey #4, and One of the Four Guards
- Anthony Asbury as Firey #5, One of the Four Guards, and Right Door Knocker
Juggler Michael Moschen performed Jareth's elaborate crystal-ball contact juggling manipulations. Additional Firey puppetry performed by David Barclay, Toby Philpott, Ron Mueck, Ian Thom, Rob Mills, Sherry Ammott, Cheryl Henson, Kevin Bradshaw, Alistair Fullarton, and Rollie Krewson
Goblin Corps performed by Marc Antona, Kenny Baker, Michael Henbury Ballan, Danny Blackner, Peter Burroughs, Toby Clark, Tessa Crockett, Warwick Davis, Malcolm Dixon, Anthony Georghiou, Paul Grant, Andrew Herd, Richard Jones, John Key, Mark Lisle, Peter Mandell, Jack Purvis, Katie Purvis, Nicholas Read, Linda Spriggs, Penny Stead, and Albert Wilkinson.
Goblins performed by Don Austen, Michael Bayliss, Martin Bridle, Fiona Beynor Brown, Simon Buckley, David Bulbeck, Sue Dacre, Geoff Felix, Trevor Freeborn, Christine Glanville, David Greenaway, Brian Henson, Jim Henson, Brian James, Jan King, Ronnie Le Drew, Terry Lee, Christopher Leith, Kathryn Mullen, Angie Passmore, Michael Petersen, Nigel Plaskitt, Judy Preece, Michael Quinn, Gillie Robic, David Rudman, David Showler, Robin Stevens, Ian Tregonning, Mary Turner, Robert Tygner, Mak Wilson, and Francis Wright.
- Brian Henson as the voice of Hoggle, a dwarf in Jareth's employ who befriends Sarah.
- Ron Mueck as the voice of Ludo, a kind-hearted beast.
- David Shaughnessy as the voice of Sir Didymus, a brave Fox Terrier knight and The Wiseman's Hat, a bird-headed hat worn by the Wiseman.
- Percy Edwards as the voice of Ambrosius, an Old English Sheepdog.
- Timothy Bateson as the voice of The Worm
- Michael Hordern as the voice of The Wiseman, an aged human-like individual.
- Denise Bryer as the voice of The Junk Lady, a hag inhabitant of Junk City
- David Healy as the voice of the Right Door Knocker, a component of the door that is between the hedgemaze and the forest.
- Robert Beatty as the voice of the Left Door Knocker, a component of the door that is between the hedgemaze and the forest.
- Kevin Clash as the voice of Firey #1, the apparent leader of the Fireys.
- Charles Augins as the voice of Firey #2, the first of the Fireys to have their head removed.
- Danny John-Jules as the voice of Firey #3 and Firey #4
- Richard Bodkin as the voice of Firey #5, the first Firey to make his head jump up and down.
Four Guards voiced by Anthony Jackson, Douglas Blackwell, David Shaughnessy, and Timothy Bateson. Goblins voiced by Michael Attwell, Sean Barrett, Timothy Bateson, Douglas Blackwell, John Bluthal, Brian Henson, Anthony Jackson, Peter Marinker, Ron Mueck, Steve Nallon, Jan Ravens, Enn Reitel, Kerry Shale, and David Shaughnessy.