A little girl named Lucie lives on a farm called Little-town. She is a good little girl, but has lost three pocket handkerchiefs and a pinafore. She questions Tabby Kitten and Sally Henny-penny about them, but they know nothing (especially since Tabby Kitten licks her paw, and Sally Henny-penny flaps back into the barn clucking, "I go barefoot, barefoot, barefoot!" neither of which is very helpful). Lucie mounts a stile and spies some white cloths lying in the grass high on a hill behind the farm. She scrambles up the hill along a steep path-way which ends under a big rock. She finds a little door in the hillside, and hears someone singing behind it:
Lily-white and clean, oh!
With little frills between, oh!
Smooth and hot – red rusty spot
Never here be seen, oh!
She knocks. A frightened voice cries out, "Who's that?" Lucie opens the door, and discovers a low-ceilinged kitchen. Everything is tiny, even the pots and pans. At the table stands a short, stout person wearing a tucked-up print gown, an apron, and a striped petticoat. She is ironing. Her little black nose goes sniffle, sniffle, snuffle, and her eyes go twinkle, twinkle, and beneath her little white cap are prickles! She is Mrs. Tiggy-winkle, the animals' laundress and "an excellent clear-starcher". She keeps busy with her work. She has found Lucy's lost things, and launders them for her. She also shows Lucie items belonging to Mrs. Tiggywinkle's animal customers. They have tea together though Lucie keeps away from Mrs. Tiggywinkle due to the prickles.
The laundered clothing is tied up in bundles and Lucie's handkerchiefs are neatly folded into her clean pinafore. They set off together down the path to return the fresh laundry to the little animals and birds in the neighbourhood. At the bottom of the hill, Lucie mounts the stile and turns to thank Mrs. Tiggy-winkle. "But what a very odd thing!" Mrs. Tiggy-winkle is "running running running up the hill". Her cap, shawl, and print gown are nowhere to be seen. How small and brown she has grown – and covered with prickles! "Why! Mrs. Tiggy-winkle [is] nothing but a HEDGEHOG!"
The narrator tells the reader that some thought Lucie had fallen asleep on the stile and dreamed the encounter, but if so, then how could she have three clean handkerchiefs and a laundered pinafore? "Besides," the narrator assures the reader, "I have seen that door into the back of the hill called Catbells – and besides I am very well acquainted with dear Mrs. Tiggy-winkle!"

Question: Why doesn't Lucie believe it was a dream?
Answer: Because her handkerchiefs are neatly pressed next to her. 
Alternative answer: she had three clean handkerchiefs and a laundered pinafore