Legends say she is the spirit of Alice de la Marche of Angouleme, France, niece of Henry II and the disgraced lover of a knight named Gruffydd the Fair. She died of a broken heart after he was hanged by her husband, Gilbert de Clare, Earl of Gloucester, who was lord of the castle. Locals say that on moonlit nights she appears on the walls searching for her lost love. She is known as “the Green Lady”, perhaps because of the ivy that spills over the castle walls, or maybe she wears green because of her husband’s envy.
The story as told by Richard Jones in "Haunted Castles of Britain & Ireland":
"Gilbert was married to the beautiful Princess Alice of Angouleme, a lady of refined tastes and passionate nature, who came to resent her husband’s warring disposition. One day, Gruffudd the Fair, Prince of Brithdir, paid a visit to the castle. Alice became enamored with this handsome and amorous Welsh prince, and soon the two were lovers. Rather foolishly, Gruffudd confessed their secret to a monk who turned out to be duplicitous and informed the cuckolded husband. A deranged Gilbert sent his wife back to France and ordered his men to find Gruffudd. Learning of the friar’s betrayal, Gruffudd caught the monk and hanged him from a tree at a site now known as “Monk’s Vale” in commemoration. No sooner had he done so than Gilbert’s men caught up with him, and Gruffudd, too, was soon dangling at the end of a noose.Gleefully, the avenged husband set a messenger to France to inform Alice of her lover’s execution. Such was the shock of the news that she dropped dead on the spot, and her ghost has haunted the ramparts of Caerphilly Castle ever since. Resplendent in a richly woven dress, colored green for Gilbert’s envy, she waits in silent solitude, desperate to be reunited with her princely lover, whose flattering attentions fate has long denied her."