The story begins in Tuscany, Italy. A carpenter named Master Antonio, but whom everyone calls Master Cherry, has found a block of wood which he plans to carve into a leg for his table. When he begins, however, the log shouts out. Frightened by the talking log, Master Cherry gives it to his neighbor Geppetto, an extremely poor man who plans to make a living as a puppeteer in hopes of earning "a crust of bread and a glass of wine".

Geppetto carves the block into a boy and names him "Pinocchio". As soon as Pinocchio's nose has been carved, it begins to grow with his congenital impudence. Before he is even built, Pinocchio already has a mischievous attitude; no sooner than Geppetto is finished carving Pinocchio's feet does the puppet proceed to kick him. Once the puppet has been finished and Geppetto teaches him to walk, Pinocchio runs out the door and away into the town. He is caught by a Carabiniere, who assumes Pinocchio has been mistreated and imprisons Geppetto.