Serpent's Cave by Ann Turnbull
Hugh and Maisie live with their father, the king, in a castle by the sea. When their father brings home his new bride, the beautiful but evil fairy Inga, their peaceful lives are turned upside down.
Inga entrances the king, and removes all opposition. Then Hugh is sent away, and Inga begins plotting to turn Maisie into a serpent. Fortunately, Hugh is rescued by a kindly woodcutter, and with the help of a horse, then a fairy, then a fox, and eventually his friend the gull, he rides home to rescue his sister, and ultimately his kingdom. But on his return, he finds an ugly serpent lurking in the children's favourite cave ... an ugly serpent who is in fact his beloved sister, enchanted by their wicked stepmother ...