The Gnome-Mobile
(1967)

Rodney and Elizabeth (Matthew Garber and Karen Dotrice, the kids from Mary Poppins) come from England to stay with their grandfather DJ Mulrooney (Walter Brennan) in California. DJ is a millionaire with a huge lumber company.  While picnicking in the woods, Karen meets a gnome named Jasper.  Since he was an infant, Jasper has lived alone with his grandfather Knobby (also played by Walter Brennan). They fear they are the last gnomes left. DJ and the kids offer to drive them to various forests to search for more gnomes.  The gnomes become agitated when they discover that DJ is the Mulrooney whose company has been chopping down their forest.

The gnomes are kidnapped by a circus huckster.  When DJ is heard talking about gnomes, he is locked up in an insane asylum, The kids bust DJ out of the asylum. They rescue the gnomes from the carnival man.  They find a large colony of gnomes living in another forest. Jasper is surprised to discover that in gnome tradition, if a young lady gnome can pin down an eligible bachelor for  7 seconds  he must marry her.  After an extensive chase by various young female gnomes, Jasper manages to get pinned by the one he likes. At the wedding, DJ announces that  he will deed his forest land as a safe home for gnomes, with no logging.  

Thanks Joseph C!
Who also adds... "Proof that in the late 60's, even the folks at Disney Studios were doing drugs."