The second gallery of the China Institute’s small, captivating two-room exhibition, “Enchanted Stories: Chinese Shadow Theater in Shaanxi,” begins with images of hell, reincarnation, and damnation. Intricately carved and assembled figures, animals, demons, gods, buildings, and landscapes line the gallery walls. These beautiful shadow puppets, made out of rawhide burnished to a translucent, golden patina and painted with black, red, and green, are graceful and animated even in their arrested state. “Knife Mountain,” a hill on which the damned are impaled on knives that sway like tall grasses, is reserved for those who kill people and animals “such as cows, horses, cats, and dogs.” They must climb “Knife Mountain.” The “extremely bad,” the catalog informs us, must live there permanently. In other scenes, blackmailers and slanderers are boiled by demons in hot oil; animal flesh is processed to determine, “according to the types of sins committed before death,” the species of reincarnated people; the fates of all but the enlightened souls must experience the flaming “Wheel of Transmigration,” and all humans must cross bridges to pass from the yang, or sunlit world of the living, to the yin, or netherworld of shadows for ghosts.

The Chinese shadow theater, hilarious, rambunctious, and mystifying, occupies a metaphoric realm that fuses the physical, sunlit world with the murky world of shadows. In the shadow theater, gods, demons, emperors, heroes, dragons, clowns, and lovers are all brought to life with light. They exist on a stage that is somewhere between the theater of entertainment and the ritual of incantation.

Going back over 1,000 years, the shadow play is the first animated imagery, and certainly the precursor of film. It is a folk art tradition that began in Shaanxi Province, the cradle of Chinese civilization, and it quickly took root as a form of entertainment. Combining music, singing, storytelling, smoke, fire, and complex puppetry, shadow theater eventually encompassed a wide dramatic range, from famous operas, myths, parables, and historical legends to farcical comedies and slapstick. Without cultural boundaries, shadow play was, and still is, performed for the poor in rural villages and for the soldiers away from home, as well as for emperors in palaces. By the 13th century it had spread to Central and West Asia, by the 14th century to Persia, and in the 17th century, introduced by missionaries, the shadow play became popular in France. In 1776 it was performed in Paris, and in 1774, Goethe introduced shadow theater at the Shenglan Exposition. Soon it was adapted to German myth and folklore.

Shadow theater’s origin, as with nearly all Chinese art forms, is fueled by legends that blend fantasy with reality. It is believed that shadow theater began during the Han dynasty and reached its peak during the Tang, Song, and Yuan dynasties. Some theories hold that paper doll soldiers and horses were made and magically multiplied to protect the innocent; or that shadow figures were animated in an attic window, drawing people out of their homes and saving them from an earthquake, or that the first puppets were designed to entertain children through a window. The most popular legend recounts the story of Emperor Wu of Han who grieved over the death of his very young wife. A form of séance — whereby candles, a stage, curtains, and a screen were erected to recall her spirit — was performed to cheer him up. She appeared behind the screen in the form of a moving shadow. Unfortunately, because she remained beyond the Emperor’s physical reach, the shadow play only made him sadder.

“Enchanted Stories” focuses on the shadow theater of the Qing dynasty (1644–1911). The 90 works on view are almost all spectacular for their elaborate decoration, writhing grace, and delicately carved rhythmic patterns, some of which look like magnified crystals or snowflakes. The puppets, which have fixed, often stark and blank expressions, are plain and tender, as well as poised and malleable. A winning combination of linear arabesque, flowing robes, pointed chins, and fingers, the puppets often represent types but they are characters whose actions behind the screen convey their changing emotions. Nothing is overlooked in the creation and decoration of the forms. Stones, foliage, scales, and wood grain are as enthralling as heroes and gods. Some of the puppets are bold, frightening, and carnivalesque. “The God of Thunder,” a winged human figure with the head of a pig, the mouth of a chicken, three eyes, and hairy horns, rides — as if he were a hamster on a wheel — a cloudburst through the sky. He beats a spinning, fiery set of drums to flashing lightning. Other puppets are as delicate as butterflies. Haloed boys, with wings that look like red maple leaves trailing ribbons of fire, fly through the scene “Lotus Platform.” And then there are forms that inspire a range of emotions, such as a tightly woven swarm of killer wasps — a golden, nightmarish doily.

At the China Institute, some of the puppets have been placed behind lit screens. The screens are transparent but they put a gauzy layer between action and viewer. When the flat forms are pressed against the white screens, almost all of their lovely detail can be seen clearly. When they are pulled back even half an inch, however, the characters begin to resemble ghosts or forms — colored shadows — in transition between the physical and the ethereal; between flat silhouette and blurred volume.

Thankfully, the show, curated by Li Hongjun, Chen Shanqiao, and Zhao Nong, also provides us with films of performances, shot both from in front of and behind the stage. The action behind the scenes is as interesting as the performance. In a ritual that resembles martial arts, painting, and dance, the seated puppeteers perform equally as musicians and singers. The puppets are waved across the back of the screen, pressed and propped against it, or they are dangled or danced, and their joints and limbs are pulled with sticks and strings — all to singing, music, dialogue, and sound effects.

Most of the action in the shadow theater moves laterally, as if across a frieze. And most of the puppets are carved in profile, although sometimes their faces can be flipped from one to another — quick changes that provide for magical transformations. But the puppets can also be turned, and their joints animated to great effect. And their shadowy movements provide wonder and depth. In the film, figures are thrown against the screen, or they are bobbed and weaved. They come in and out of focus. Their movements are sometimes choppy, even childlike or awkward.

At other times the puppets thrash wildly, engage in swordfight, embrace or stroke one another tenderly, or dance with a liquidity that is smooth, natural, and lithe. A bird on a stick is spun around a flowering bush, as a man meets his true love. A girl’s ponytail flails in the wind as she and her lover, comically fixed in their boat, gaze into each other’s eyes and ride out a rainstorm under an umbrella.

The simplicity of the puppets’ movements, coupled with the pure grace, beauty, and monumental grandeur of their forms and settings, provides for an exhibition that is as enchanting as it is unforgettable.

Until May 11 (125 E. 65th St., between Lexington and Park avenues, 212-744-8181).