Barbie and Teresa are writing song together with their guitars. Stacie, Barbie’s sister interrupts them, upset at Courtney, on of her best friends. To calm her down, and help her understand how she’s feeling, Barbie begins to tell her about Liana and Alexa, two friends who would also get very angry at each other.
The two girls are very poor, but are very close. They both love of music, and earn their livening together planting flowers and live in a hut adjacent to a beautiful garden. One day, they discover a couple of heart-shaped stones in a nearby rive. These “stones” are actually from the mythical Diamond Castle, but they don’t know that and decide to fashion them into necklaces meant to symbolize their bond of friendship. The following day, an old woman gifts them a mirror for the kind act of sharing their food with her. Unbeknownst to any of them Melody, an apprentice muse, is hiding in the mirror, having fled from muse turned evil Lydia, who turned two other muses to stone, Melody is the key to locating the now hidden Diamond Castle, the birthplace of music, and is hiding because if Lydia locates the Diamond castle, she will put an end to all music, and subsequently put an end to everything. Lydia’s servant, Slyder the dragon, is hunting for Melody and upon hearing her voice, coaxed out of the mirror by Liana and Alexa’s singing. Upon hearing the fugitive muse’s voice he comes upon the girls hut and destroys it.
The girls flee with Melody from dragon and search of the Diamond Castle to protect it from Lydia, and encounter a pair of puppies in their flight. However, they have no food or money. When they find out an inn needs replacement musicians for the evening, they eagerly sign up. The musicians they are replacing are the twins Ian and Jeremy. When the boys witness the girls playing and singing, they are immediately enthralled, but Liana and Alexa leave before they can introduce themselves. After leaving town, Lydia shows up and tries to use her magic flute to control their minds, but is thwarted by the power of the heart shaped stones on the girls’ necklaces. With her magic not working she calls on Slyder to attack, but the girls are saved in the nick of time when Ian and Jeremy arrive on horseback and spirit them away.
Traveling together, the four run into a troll that the boys had tricked and escaped from before and demands the girls answer his riddle or he will eat the twin musicians. They figure out the riddle, and not only free Ian and Jeremy but get carried off on a rainbow bridge, leaving the boys behind again. Liana and Alexa find themselves lost again in need of food and shelter. They find a mansion in the woods and ask for help. To their surprise, the servants act like they are their long lost Mistresses and offer them shelter and all the food and clothes the girls could ever want. Alexa decides she wants to stay, but Liana insists they honor what promised to Melody. The two girls have a bitter fight, that ends with Liana heading off and Alexa staying, ripping the friendship necklace in anger at Alex’s betrayal and abandoning of her. Slyder immediately shows up (the mansion’s servants were under Lydia’s power) and carries Alexa to his mistress. Lydia quickly realizes that Alexa doesn’t have Melody and uses her powers to seek out Liana, who must be carrying the muse. Without the hear-shaped stone to protect her, Alexa can’t stop telling Lydia that Liana and Melody are seeking out the Seven Stones (where the Diamond Castle has been concealed.
Lydia abducts Liana and uses Alexa, now under her mind-control to force Melody into revealing the location of the Diamond Castle. Lydia agrees to free the girls once she has Diamond Castle, but instead has Slyder throws the two off a cliff. They barely survive. Using Alexa’s necklace, Liana manages to break Lydia’s mind-control over Alexa. They climb back up the cliff to discover that one of puppies has helped Ian and Jeremy to find them. Together again, they head for the secret hiding place of the Diamond Castle.
Melody, in the meantime, is keeping Lydia busy with a made-up story about the castle and a key to it. Lydia figures out it’s a story, but by then four have a come up with a plan of their own. Ian and Jeremy are decoys to get Slyder out of the picture. Alexa and Liana approach the evil muse and appear to fall under her power. When Lydia tries to command the girls to jump into a whirlpool she’s created, Liana steals her flute. Lydia then threatens to shatter Melody’s mirror, but the young muse shatters it herself, unwilling to allow Lydia to gain the Diamond Castle for herself. Liana then drops the flute into the whirlpool. Lydia jumps after it, but gets caught in the raging torrent and, unable to use her now waterlogged flute, gets dragged under and disappears.
Thinking they are free of the evil Lydia forever, the girls and melody sing the song that is the key to bringing the Diamond Castle out from under its concealment. When they step instead, they find all their clothes become grander and Melody is finally released from her mirror. She takes the girls to the instruments the other muses’ left, but they are all surprised when Lydia shows up, riding on her dragon’s back and attacks them. Melody quickly acts to save the instruments from being petrified while Alexa and Liana play and sing. Their performance creates barrier that reflects Lydia’s magic back at her, transforming both her and Slyder into statues, ending their threat to the Diamond Castle and the world forever.
Now that Lydia’s evil has been defeated, all the other muses come back to life. They grant the girls the titles of Princesses of Music, Melody is advanced to the position of full muse, and the twins earn a pair of awesome electric guitars. Even though Melody asks the girls to join her and live in the castle, the girls confess what they really want is to go back home. In gratitude for their heroism, the muses gift them with magical flower seeds and return them to their old lives.
Finally home, the girls plant the special seeds and the most gorgeous flowers soon blossom from them. Jeremy and Ian achieve fame around the land performing with their electric guitars. And sparkles (Liana’s puppy) and Lily (Alexa’s puppy), are happy to accompany the girls wherever they go.
As Barbie’s story finishes, Stacie comes to realized that a true friendship can’t be broken by anything. She leaves to make up with Courtney, while Barbie and Teresa sing a song together.
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