Howard Phillips Lovecraft is considered to be one of the most influential writers and prominent innovators of the horror genre. This paper analyses the notion and origin of Lovecraftian horror by comparing Lovecraft’s novella The Shadow over Innsmouth to the structure and themes commonly found in classic folk tales and defining what elements set it apart from it, relying mostly on the theoretical framework provided by H. P. Lovecraft, Christine Brooke-Rose, Rosemary Jackson, Sigmund Freud, Vladimir Propp and Tzvetan Todorov. Significant attention is also given to Lovecraft’s essay “Supernatural Horror in Literature” which contains the author’s vast knowledge of the supernatural horror genre as well as his thoughts on what narratives of supernatural horror should contain and deal with. The paper determines whether The Shadow over Innsmouth contains those elements proposed by Lovecraft that define it as work of true supernatural horror. The paper also examines the way Lovecraft deals with common themes in fantastic literature, such as the unconscious desire, deviant sexuality and the characters’ perception of themselves. Lastly, the paper also briefly presents the notion of the philosophy of cosmicism and the cosmic horror genre together with the elements of Lovecraft’s fiction that make it unique and which have made the author the undisputed authority of supernatural horror.