As the name implies magic realism involves the insertion of magical elements into an otherwise mundane, realistic narrative. An example of magic realism in The Palm-Wine Drinkard occurs when the protagonist of the story breaks the rules of the ordinary, everyday world by making the long, perilous journey to Deads' Town, the land of the dead. The protagonist is an ordinary character, but what he does here is extraordinary. This is a prime example of magic realism at work.

Tutuola's use of magic realism in this context is designed to highlight the close links in traditional African cultures between the living and the dead. For many Africans, their ancestors are the source of great wisdom; they live on in the many traditions handed down to successive generations. One such ancestor is the Palm-Wine Tapper, whom the protagonist needs to consult if he's to find out how to make his favorite tipple.