I can't think of any for little ones that young ... so many of the enchanted stories do contain scary parts.
What about considering doing a dress up party and have them pretend play as fairies, elves and such?
The movies that came to mind were Laybrinth, Willow and Ever After ... but none I'd recommend for kiddos that young. Neverending Story sounds good but it still has some parts I wouldn't want my little one that age seeing (but we don't do TV period, so I'm a bit biased there.
). What about an animated movie?
I really like the idea of making it magical by letting their imaginations and creativity take bloom instead of sitting them in front of the TV. Okay, there I go again with my no TV bias. Sorry.