Looking for a childrens book written in the 90s?

I am looking for a children's book written in the 1990s. I don't remember all the details, but there is a boy in the forest who lives with some elves/gnomes and there is a monster/dragon that he overcomes in the book. The book is definitely a folklore type and the images were watercolors. The story was not your typical children's book, it had a very serious tone and the pictures spanned both pages. Again I don't remember all the details perfectly but I am trying to find this book. Thanks for any help.