"Rip Van Winkle" is set near the Catskill Mountains and the Hudson River, both real places. Despite the reality of the setting, the short story slowly begins to fill with supernatural elements. The characterization of the Catskills as “fairy mountains” points to the mystical elements of the land. Furthermore, before Rip has his encounter with Henry Hudson and his crew, he lies on a “grassy knoll.” This event has roots in German and Celtic mythologies, in which people who fall asleep on green knolls find an opening to the fairy realm. These people may experience changes in time, just as Rip experiences his forward jump through time.

Further supernatural elements are found through the “peals of thunder” that Rip hears. The thunder turns out be the spirits of Henry Hudson and his men playing a game of nine pin. The spirits of Henry Hudson and his crew from the Half Moon are the most obviously supernatural element in the story. According to the village’s eldest man, Peter Vanderdonk, they keep vigil in the mountains every twenty years. In doing so, Hudson is able to survey his land much like a monarch would. This connects to the “king in the mountain” motif seen in European mythologies. The “king in the mountain” watches over his land and promises to return to it someday. Although Hudson is no king, Irving uses this story to create a viable, American piece of folklore.