When Grace Kelly of Philadelphia gave up her acting career to become Princess Grace of Monaco, it seemed to be the end of one life and the beginning of another. The spunky Irish girl, daughter of a onetime bricklayer, became Her Serene Highness, a butterfly freed at last from its chrysalis. But now, one year after her death, what emerges from family and friends in the second of PEOPLE'S special two-part series on the first anniversary of her death is a more complex portrait of Grace. Behind the beatific smile and the glittering prize of palace life, Grace of Monaco was still Grace Kelly, a woman whose outward happiness was frequently shadowed by restlessness.

The public princess lived in the 200-room, pink-walled royal palace and remained a regal presence at hospital openings and charity galas. The private Grace often retreated to her French farm Roc Agel, where she allowed the Kelly in her to surface once again. There she laughed and danced with her family and friends and spent quiet hours doing needlepoint.

Still, she could not escape problems in her marriage to Prince Rainier nor the daunting challenge of raising three children in a fishbowl of publicity. Moreover, she missed her down-to-earth American friends and longed to return to the movie business.

A year before the fatal car crash, author Fleur Cowles asked her old friend to contribute a few lines to Cowles' illustrated The Flower Game. Here is what Grace wrote:

"I would try to find a fresh water pond on the island for my water lilies with the hope that their large leaves will attract frogs. Who knows? One might turn into a handsome prince who would be decent enough to whisk me off this lonely island and take me back to civilization...After all, I am really a city girl at heart!"

The future seemed less complicated to the city girl on Jan. 5, 1956, when she first told reporters gathered at the Kelly house in Philadelphia of her plans for a royal wedding. Grace had just completed filming The Swan, where she was wooed and won by a screen prince (Alec Guinness), and now there was the promise that she could live that part forever.

John B. Kelly, however, was concerned for his daughter's happiness. "Royalty makes no difference to me," he snapped to a crony. "If she has to face a lot of snobbery, I don't want any part of it." But Grace told friends that she'd thought the marriage through very carefully. After all, she was already 26 and most of her friends were married. She knew she wanted a family. "Grace was not a vamp," says actress Rita Gam. "She always wanted a home." Rainier could offer her a way of life that until now she had enjoyed only on the set. She was charmed by his manners, and they both loved animals, theater, art, sculpting, shopping, traveling and a good Roman Catholic way of life. "Grace needed a combination of the fairy-tale life and the rules and obligations of family that she had lived and loved at home," explains Judy Quine, a bridesmaid. Besides, adds Gam with a laugh, "How many Academy Awards can you win?"

With typical Kelly determination, Grace threw herself into the role of bride-to-be. But once the honeymoon aboard the royal yacht Deo Juvante II was over, Grace felt herself to be ill-prepared for her duties at the palace. In addition to being both princess and publicist for her new kingdom, Grace had to adjust to marriage, a new set of customs and a new language. (Her French never was fluent; friends say she took lessons all her life.) She also had to earn the respect of some Monegasques who were initially reluctant to see a flashy American screen star become their sovereign.

Grace was not, in fact, all that public a figure in the beginning; Caroline arrived nine months and four days after the wedding. And soon, Grace was pregnant with Prince Albert. "It was hard to remember not being pregnant in those days," she once said. (Stephanie was born seven years after Albert.) Still, Gam observes, Grace was soon running Monaco the way her mother had run the Kelly household back in Philadelphia. "She organized the children, servants, office and kitchen," says Gam. "She was a terrific administrator, and one side of her loved the glamour of being a princess." And the challenge. When Aristotle Onassis, who had bought a controlling interest in Monaco, tried to turn it into a cut-rate tourist trap, Grace convinced Rainier to stand firm. "She gave him the strength," says Gam, "to put Onassis down." Rainier bought back his paradise in 1966.

Grace and Rainier discussed everything from handling the children to home furnishings. Although they disagreed on many subjects, such as their children's names—he fancied Hercule or Honoré—Gam claims "it was a satisfying marriage, if not flaming in passion." John B. soon realized his son-in-law was far from stuffy. "He has a warm and wonderful sense of humor," says Grace LeVine, 27, Grace's niece. Agrees Kelly family pal Jack Edelstein: "The public rarely sees that side of him. He likes Woody Allen records. I remember taking one to a party at the palace one night, and Grace insisted I play it. I said, 'No one will understand it.' She said, 'When Rainier laughs, everyone laughs.' "

Grace and Rainier did not take themselves too seriously. Once, on a visit to a cottage in Ireland, Grace had to use a potty because there was no indoor plumbing. Relatives joked that the old lady in the cottage probably bottled it and sold it. Rainier howled over the episode.

At the palace, a more formal, more controlled Grace prevailed. She organized her day to dine with the children, worked at her desk on Monaco's problems and wrote many letters home. The take-charge attitude she lived by was drilled in her from Philadelphia days. "She turned the 'help me' quality she nursed as a child into helping others," says a friend. Adds Judy Quine: "Never forget that Grace was a working woman. She took her experience as an actress and applied it to being a princess, a wife and mother. She knew life was not simple."

There seemed to be no end to her child-rearing problems, in particular with Caroline—a beautiful and headstrong throwback to Grace's independent grandmother, Mary Kelly. When Caroline fell in love with French boulevardier Philippe Junot, a friend says Grace was crushed: "She knew Junot would make Caroline unhappy, and she tried to talk her out of it. But after the marriage failed she never said, 'I told you so.' "

Grace had always insisted on being around when the children were growing up—in some cases, perhaps, too much. Friends say Albert—"Alby" to the family—was a mama's boy and Stephanie terribly spoiled. (It was Stephanie's fear of being kidnapped that caused Grace to leave the palace to live in Paris with her youngest child several years ago—thereby prompting rumors of a royal separation.) Grace acted as a chaperone for both daughters attending school and for her niece Grace LeVine, who was studying at the Sorbonne. "Steph is spoiled, but Aunt Grace was always a strict mother," says LeVine. "You knew your limits with her, but you came out with good rules for living. And she had a great sense of humor. I was crazy about her."

Like George Kelly, the playwright uncle she adored, Grace amused her kids with her superstitious quirks. For instance, no one could put a hat on the bed because it might bring bad luck. On special occasions she would put a penny inside her shoe. She would extract herbal remedies for ailments from flowers. Grace saw the humor of it all. "She could be silly and giggly," says an intimate.

And she loved to entertain. In May 1974 Grace celebrated the 25th anniversary of Rainier's ascendancy to the throne with the flair of a giant Kelly picnic. The following comments come from the diary of a family guest during a three-week stay.

"Since Grace was away the day we flew in, no one fetched us at the airport, but the palace reimbursed us for the cab fare. We stayed at the palace, where they had printed menus in French, and Sunday lunch had four butlers for five people. The following day [fashion designer] Vera Maxwell and Grace arrived from New York. Grace then had a few chums over to the palace for Scrabble. The girls gossiped and had a ball."

"The next day was a black-tie dinner with all of Monaco's consuls and Grace's friend Cardinal Krol of Philadelphia. Aristotle Onassis was there, and Freddie Heineken, who looked like he drank his profits, tried to turn Krol into an atheist."

"The next day was Mass. It was impressive, with music and singing that was out of this world. After, we went to the palace courtyard for speeches and applause. Champagne was served to the royal family, then 500 Monegasques dived in like they had found a Gimbels basement sale. Then we attended a party at the Hotel de Paris. Everybody acted like monkeys. Grace and Rainier left the party at 3:15 a.m. As Ma Kelly [Grace's mother] and I followed, I had to fight off the hotel doorman—he had a crush on her. Later, Rainier came home decked out in his favorite getup, a Groucho Marx outfit: long hair, large nose, glasses and shifting eyes. I could tell everyone in Monaco loves the royal family. The next day we attended a Mozart concert in the palace's throne room, then had leftovers for lunch."

Her life seemed full, but as the kids got older, Grace quite often became so homesick for her American family and friends that she would call and cry about being so far away. She talked about writing a novel, and she hoped to have grandchildren. She joined the board of Twentieth Century-Fox, then began dramatic and poetry readings. Her pressed-flower designs were even appearing on sheets and pillow cases marketed in the U.S.

Much of her time with Rainier was spent in disagreements over minor things. "We argue over electrical repairs," Grace told her sister Lizanne. "Rainier always has to get his two cents in. If we don't get divorced over this, we never will." Caroline's divorce had hurt her father, and he tended to fall into black moods. "Grace was very unhappy during the past few years," confides a cousin. "When she called home, she cried about Rainier's sour attitude. She didn't know what to do."

Others say it was not so much a problem between them, but rather that Rainier never liked the Hollywood friends to whom she felt increasingly drawn. He had hated the limelight from the beginning of the marriage. In 1982, when Philadelphia celebrated its 300th anniversary, Grace's Hollywood friends, including Jimmy Stewart, Bob Hope and Frank Sinatra, showed up to salute her. Rainier, however, chose to stay home. Her date at the event was her brother Kell.

Yet friends who saw Rainier at her funeral last year in Monaco said they couldn't remember ever seeing anyone so totally consumed by grief. "If Michelangelo could pick a subject to depict the epitome of pity and sadness, he would have painted Rainier," says Tom Foglietta, the Philadelphia Congressman who was Nancy Reagan's escort at the funeral. "After the ceremony the people went back to the palace for wine in the garden. While Rainier was accepting condolences he walked to the edge of the balcony overlooking the sea. As he caught a view of Monaco, he slowly began to cry. After a moment, so did I."