The setting: a boy's orphanage out in the middle of freakin' nowhere at the end of the Spanish Civil War. The building is extremely isolated (of course), and is a whole day's walk across dry scrubby desert to the nearest town in case, well, you know, anything were to go wrong.
A young boy named Carlos (Fernando Tielve) is unceremoniously flung at the orphanage by his tutor who doesn't have the heart to tell the kid that his father has been killed in the war. Carlos has the usual trials and tribulations of trying to fit in with the other kids, including butting heads with the bully Jaime (Íñigo Garcés) who sees him as a threat. But soon Carlos discovers (in a series of frightening encounters) what all the other kids already know: there is a ghost wandering the premises, and he is not happy.
Though Guillermo del Toro's style is heavily Hollywood-influenced, he is a lot more subtle (like Amenábar) than your typical American director. He doesn't go where you think he will, but then turns around and shocks you when you least expect it. He makes the best of his setting, with exceptional cinematography—from the impressive opening scene of a bomb falling into the courtyard on a dark, rainy night (...and not exploding), to terrifying shots from Carlos' perspective of seeing the ghost of The One Who Sighs standing and looking at him from way at the end of the hallway (reminded me of the twins in The Shining... *shudder*).
Filling out the strong cast are the classy and strong Marisa Paredes as the harried headmistress barely making ends meet, Federico Luppi as the silver-haired patriarch teacher of the boys, and sizzling-hot Eduardo Noriega as the sinister young-buck groundskeeper. And finally, special acknowledgement must go to the makeup and special effects departments, for creating one of the most nightmare-inducing ghosts I've ever seen on screen. I don't know about you, but if I were forced to stay in a building with The One Who Sighs, I'd grab a canteen and choose the long walk across the desert instead!