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Taran continues his adventures and encounters new friends and old enemies.
As the story begins, Dallben has decided that Princess Eilonwy, as one of the few descendents of Llyr, must be sent to the Isle of Mona to train to become a proper lady. Taran, the Assistant Pig-Keeper, and his loyal follower Gurgi are sent to escort her to Mona. They get there via a ship "captained" by the incompetent but good-hearted Prince Rhun who, unbeknown to Taran and Eilonwy, is expected to be betrothed to the latter.
Taran is openly aware of his feelings for Eilonwy for the first time, but feels he is unworthy of Eilonwy's hand due to his status as a mere Assistant Pig-Keeper. When he learns of the plan for Rhun and Eilonwy to be betrothed, Taran becomes further embittered by his lot in life, and convinces himself that it is better for Eilonwy to be with people of comparable status. While visiting the Isle of Mona, Taran bumps into his old friend Fflewddur Fflam, who has abandoned being a king in favor of wandering as a bard once more. He was originally allowed to stay in the palace, but when the King's Steward, Magg, discovered that Fflewdur wasn't a real bard, Fflewddur was forced to sleep in the stables.
While Eilonwy suffers the tedium of life at court and lessons of proper lady-like conduct, Taran meets the castle's shoemaker, who turns out to be none other than Prince Gwydion of Don. Gwydion tells Taran that Eilonwy is in grave danger, very likely from the evil sorceress Achren, whom they had previously thought was killed in the destruction of Spiral Castle. Gwydion tells Taran that Eilonwy must be closely watched for the girl has a knack for getting into trouble and her distaste for palace life is only likely to exacerbate her thirst for adventure.
Soon after, Taran and Gwydion trail Magg and witness him conducting peculiar business on the coast of Mona. The distrust of Magg proves well-founded when Eilonwy turns up missing the next day after breakfast. A search party is immediately sent out under the presumed command of Prince Rhun. However, King Rhuddlum knows that his son is unfit for command and has actually placed the Master of Horse in control of the search party. Rhuddlum, having heard of Taran's exploits and experience, asks Taran to keep his son from harm during the search.
Shortly after the search party gets underway, Taran is startled to find that Prince Rhun has become separated from the group. Taran, Fflewddur, and Gurgi break from the search party to go in search for him. Their efforts lead them in a circle, but the next day, they find Rhun sleeping in a small, dilapidated house. Searching the house, Rhun discovers a very odd book full of empty pages which he decides to keep for himself. Taran and Fflewddur are surprised to find that the hut is filled with recipes for potions written by someone named Glew. Glew experimented with these potions on a mountain cat named Llyan. Horrified by what they have discovered, the companions hurriedly prepare to leave. However, it is at that moment that Llyan, herself, returns to the house and traps the companions there. Llyan, it turns out, has grown larger than the average horse as a result of Glew's potions. The ferocious mountain cat becomes docile when Fflewddur plays his harp, and this allows Taran, Rhun, and Gurgi to flee, leaving the hapless bard a prisoner of the great cat.
Fflewddur is able to rejoin Taran and the others a short while later, having made a run for it when Llyan fell asleep. At this point they are found by Taran's pet crow, Kaw, who has been aiding in the search for Eilonwy by scouring the land from above. Kaw leads them to the river Alaw and the fresh tracks of Magg and Eilonwy's horses. Additionally, they find Eilonwy's magic bauble lying on the river bank. Sure that Magg ferried the Princess down the river, the companions set about making a raft to follow the trail. As he searches for wood and vines for the raft, Prince Rhun manages to tumble down a hole. When extracting Rhun from what proves to be a rather deep pit proves fruitless, the companions are forced to follow him down and search for another exit. They soon discover that the pit opens up into an extensive series of underground caves. These caves prove to be the home of none other than Glew who, having consumed one of his own potions has become a giant, standing thrice Taran's height. Glew laments that he has been trapped in the caves for some time as his considerable size prevents him from leaving. The companions convince Glew to show them a way out, but Glew betrays them, trapping them inside a small chamber in the cave. Sobbing pitifully, Glew tells the companions that he is sure he has discovered the recipe that will turn him back to his original size, but in order to complete the potion he must kill one of the companions.
While Glew gives them time to think over his proposal, the companions notice a hidden exit in the chamber situated high over their heads. By constructing a human ladder, the companions allow Prince Rhun (at Taran's insistence) to climb out of the underground caves. The party ultimately manages to escape when they blind Glew with the light of Eilonwy's bauble, which lights for Taran when he grasps the bauble and thinks about Eilonwy, and then for Rhun who selflessly returns to the cave after deciding that he cannot simply leave his friends behind. Once blinded, Glew inadvertently causes a cave-in and manages to knock himself out cold in the process. The cave-in opens an exit to the surface, and the companions make their escape.
The company finally reaches the coast of Mona after navigating down the river on a makeshift raft. There, they meet Gwydion again, and much of what has happened is clarified. The book of empty pages that Rhun took from Glew's hut is actually a book of the House of Llyr's most powerful enchantments, which are only revealed under the light of Eilonwy's bauble, formally known as the Golden Pelydryn. Eilonwy herself is being held captive on the island of Caer Colur, upon which stands the ruins of the House of Llyr. The companions set out to the island in the middle of the night, and upon disembarking, Gwydion hides the book and the bauble.
Kaw once again renders the company a great service when he discovers the tower in which Eilonwy is being held. Keeping to the shadows, the company decides one of them should climb the tower using a rope that Gwydion brought and retrieve the Princess. Though Taran insists Rhun should go as he is to be her future husband, Rhun abdicates to Taran saying, "I rather guess you might really be the one Eilonwy would prefer to see first." Having secured the rope, Gwydion turns to Taran and says, "I know what is in your heart. Climb up, Assistant Pig-Keeper. I leave this task to you."
Taran reaches the top of the tower only to find that Eilonwy has been bewitched by Achren, and has no memory of him or of the companions. When Taran's efforts to stir Eilonwy's memory fail, she runs from the tower crying in distress at finding a stranger in her room. The companions are attacked by Achren's guards and eventually face Achren herself. Rhun inadvertently mentions to Achren that the companions know where the book and the bauble are, and Achren demands they be given to her. When Gwydion refuses to do so, Achren turns to Taran. Knowing that Eilonwy's failure to remember him is a great torment to Taran, she tries to cut a deal with him: if Taran turns the book of spells and the Golden Pelydryn over to Achren, she will restore Eilonwy's memories of Taran, and allow him to marry Eilonwy. Achren further twists the knife by revealing to Taran that she knows Eilonwy is supposed to be betrothed to Prince Rhun. Gwydion, sensing Taran's torment, shocks the companions by telling Achren he will reveal to her the location of the book and the Pelydryn.
However, when Eilonwy takes hold of her ancestral heirlooms her subconscious begins to fight against Achren's spell. Calling upon the full power of the Pelydryn, Eilonwy incinerates the book of spells, thus sundering Achren's hold over her. Achren's last bid for power is finished, and Magg has double-crossed her by raising the flood gates that protect the island from the wrath of the sea. The companions are scattered amidst the fury of the riptide and Taran loses consciousness. He awakens on the shores of Mona to find that Llyan has pulled the companions from the shallows. Achren, whose power is now all but completely broken attempts suicide, but is thwarted by Gwydion. Eilonwy has little memory of the incident, and all is recounted for her. Before leaving the sea, Eilonwy finds a battle horn that has washed ashore, which she says is "all that's left of Caer Colur." Eilonwy gives the horn to Taran as a pledge that she will not forget him during her tenure at Dinas Rhydant. In return, Taran can only offer his word that he will not forget Eilonwy, which she accepts.
The end of the book strongly implies that Eilonwy reciprocates Taran's feelings towards her.
Caer Colur is the castle referred to in the book's title, as it was the seat of power for the House of Llyr.
The castle was formerly on a peninsula in the sea on the Isle of Mona, though in process of time it was abandoned and the causeway connecting it to Mona was washed out by the sea. Princess Eilonwy was once held captive here by Achren. And although she escaped with Taran and the others the castle was flooded by and she was sad to see her home gone. Caer Colur was also the home of Queen Regat and Princess Angharad, but was abandoned and fell into ruin when Princess Angharad fled the castle to marry her true love against her mother's orders.
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- Tuck, Donald H. (1974). The Encyclopedia of Science Fiction and Fantasy. Chicago: Advent. p. 6.