The central, game-changing twist of "Over the Garden Wall" is revealed in the penultimate episode, "Into the Unknown": Wirt and Greg are not children from a bygone era but are from the modern day. Their journey in the Unknown is the result of a near-death experience on Halloween night. While trying to retrieve an embarrassing cassette tape of poetry he made for his crush, Sara, Wirt and Greg are startled by a police officer in a graveyard, causing them to jump over a cemetery wall and tumble down a hill into a lake, where they fall unconscious in the freezing water.
This revelation re-frames the entire series as a possible purgatorial dream state. The Unknown is the space between life and death. The ultimate goal is not just to get home, but to choose life over the sweet surrender of despair offered by the Beast. The Beast himself is revealed to be a deceiver on multiple levels. The Woodsman believes the lantern he carries holds his daughter's soul, but Wirt deduces the truth: the lantern contains the Beast's own soul, and by keeping it lit, the Woodsman has been unwittingly sustaining his enemy. The Edelwood trees that fuel the lantern are the souls of other children who lost hope and surrendered to the Beast.
In the finale, Wirt uses this knowledge to gain power over the Beast. He refuses the Beast's offer to place Greg's soul in the lantern, recognizing it's a trap. He gives the lantern to the Woodsman, who, finally understanding the deception, blows it out, destroying the Beast. Immediately after, Wirt and Greg awaken in the lake and are rescued. They wake up in a hospital, having survived their ordeal. The final shot of the series shows Greg's frog, back in the real world, and its stomach glows, revealing it swallowed Auntie Whispers' magic bell. This detail confirms that their experience in the Unknown was not merely a dream, but something tangible that has followed them back, leaving the true nature of their journey magically and beautifully ambiguous.