I recently watched Fritz Lang's 'Die Nibelungen' and Margarete Schöns character has this wonderful animated dream sequence (see the video below). I only just discovered that the animation was done by Lotte Reiniger in 1924, which would have been during the time she was working on her masterpiece 'The Adventures Of Prince Achmed'.
Prince Achmed was completed in 1926 and considered to be the oldest surviving feature length animated movie. Although it failed to find a distributor for over a year, upon its release at the Cannes Film Festival it became a critical and popular success. Reiniger became a celebrated pioneer of silhouette animation. She had created all the characters and cut out every single silhouette herself, colour-tinting the 300,000 frames by hand. Taking the ancient art of shadow-plays, as perfected in China and Indonesia, she adapted it brilliantly for the cinema. It was a true labour of love.
BFI released a DVD collection of her short films as well as a fully restored (with a new recoding of the original soundtrack) version of 'The Adventures Of Prince Achmed'. It's a very distinctive unique way to animate and all her work is worth watching, it's simply beautiful.