Heey!!
I'm currently re-building my whole second island and going for a kind of similar theme!
I am planning to build a castle around the resident services and basically make it a small castle town surrounded by forest, using the castle items.
It'll include most villager houses and the shops.
Planning on using moss items and other glow-in the dark items to create a fairy forest for all the forest and perhaps add a witch's hut somewhere (obviously a lil swamp area hehe).
There is a video of an "enchanted island" tour on youtube, maybe it's similar to what you are thinking of?
Not sure how helpful this was but I've seen some very creative islands out there so I'm sure you will find something to inspire you!
In my opinion, Pinterest is the perfect place for inspiration! Here are some ideas that I think are absolutely beautiful and would definitely use if I ever decided to transform my island into a fairytale theme. Hopefully this helps!
I made my house into a castle on the outside, but the upper right square of my island is fantasy themed.
But I see you like Disney, so I'm gonna recommend this video! Her builds inspired many of mine, but she also has a fairytail feel like her castles, and gardens
The Zodiac items could work well, maybe? The Aquarius urn and Capricorn ornament, especially, would look nice as outside decor!
You could use few of the items from the Mermaid series as well, even if none of the areas/homes are mermaid-themed (the table and sofa spring to mind). Their soft colours are very princess-ish imo.
for a fairytale themed island please
of these ideas 
