This essay examines the structural relationship between the folktale and the gothic novel with focus on characterization. This study will present a clearer definition of the now problematized gothic genre and show how newer genres are influenced by the older ones. This examination is done by doing a close-reading of Horace Walpole’s The Castle of Otranto, which is generally known as the first gothic novel, and comparing it to formalist Vladimir Propp’s findings on the functions of the Russian folktale. Walpole’s novel is used as primary source of data and the key works by Propp is utilized as the theoretical framework. In addition, a couple of critical essays have been looked upon in relation to the previous works. This study finds that there are apparent similarities in structure and narrative in the gothic novel in relation to the folktale such as the presence of the same essential characters and functions. This proves the overlap between the two genres and it would be reasonable to conclude that the gothic genre consists of a part folktale. By the revelation of this previously unknown relationship between the folktale and the gothic genre this essay opens up for further research on the origin and influences of gothic fiction.