The Scorpio Races by Maggie Steifvater

This isn't, in the strictest sense, a fairy tale, or retelling.  But it does hit strongly on the otherworldly, the underhill, or in this case, the undersea.

I admit I was turned off by the premise at first: on the tiny island of Thisby, at the beginning of every November, the islanders get together to race their water horses -- capaill uisce -- deadly creatures that would more often than not turn on their riders if given the chance.

What makes this story work is -- well, everything.  Stiefvater tackles the subject skillfully, building the lives of Puck Connolly and Sean Kendrick with care and detail, filling the world with tactile details, and creating a strangely bizarre but believable island.  Puck and Sean both have real stakes and their romance is savory and slow.  With ties to fairy magic (bells and iron to control the water horses) and a respect for Celtic-lore, the book is thoroughly enjoyable.

Also, the audio version is extremely well narrated, with a voice for Puck and a voice for Sean.  If you're an audiobook fan, I definitely recommend this one.