The Minpins by Roald Dahl.
The Minpins was published in 1991 and was Roald Dahl's last book. Little Billy is a small boy whose mother warns him never to enter the Forest of Sin, which is filled with terrible creatures. Of course, Billy goes in. He is chased by the terrible Gruncher — a fire-breathing creature — and climbs a tree to escape. Inside the tree he discovers the Minpins: tiny people no bigger than a finger, who live in the hollow trees of the forest. The Minpins have been terrorised by the Gruncher for years. Billy devises a plan using swans to lure the Gruncher into a lake, where it drowns. The Minpins' chief, Don Mini, offers Billy the most wonderful thing: they let him ride on the back of a swan over the rooftops at night. Billy returns home safely and never tells his secret — knowing, as the book says, that 'those who don't believe in magic will never find it.'