Les Enfants Terribles is a very faithful filmic adaptation of Jean Cocteau's 1929 novel of the same name, and Cocteau worked in very close collaboration with Melville, providing the dream-like voiceover. There are very strong intimations of incest and homosexuality in the film, although nothing specific.
Paul becomes ill due to fellow pupil Dargelos (Renée Cosima) throwing a snowball at him, although he doesn't denounce him, it is evident that Dargelos1 holds some homoerotic power over him. After the death of their mother, the adolescent brother and sister Paul (Édouard Dermit)2 and Élisabeth (Nicole Stéphane) live together in intimate isolation, developing a kind of secret language. They are reluctant to shed their youth.
Although Élisabeth marries the rich Michaël, there is no consummation as he dies the next day. Along with his money, Élisabeth inherits a large hôtel particulier and Paul goes to live with her. They are joined by Paul's friend Gérard and Élisabeth's friend Agathe, who loks very much like Dargelos, so much in fact that Paul comes to fall in love with her, and vice versa. This is the beginning of the real problems, and the film has something of a Greek tragedy about it.
It's easy to see why the novel appealed to Melville: his second film has many of the ingredients of the néo-noir works he become so popular for later, such as friendhship, loyalty and betrayal, etc.
1 In Cocteau's Le Livre Blanc (1930) he reveals that Dargelos is based on a real person who had a great effect on him.
2 Dermit was Cocteau's ideal in physical beauty, whom he nicknamed 'Doudou', and who also played in Cocteau's films from L'Aigle à deux têtes (1948) to Le Testament d'Orphée (1960). He lived with Cocteau, became his heir, and is buried with him in the Chapelle Saint-Blaise-des-Simples in Milly-la-Forêt.