We present the XMM-Newton RGS and EPIC pn spectra of a long (simeq 100 ks) observation of one of the soft X-ray brightest Compton-thick Seyfert 2 galaxies, NGC 424. As a first step, we performed a phenomenological analysis of the data to derive the properties of all the spectral components. On the basis of these results, we fitted the spectra with self-consistent photoionisation models, produced with CLOUDY. The high-energy part of the spectrum is dominated by a pure neutral Compton reflection component and a neutral iron K-alpha line, together with K-alpha emission from neutral Ni, suggesting a significant Ni/Fe overabundance. The soft X-ray RGS spectrum comes mostly from line emission from H-like and He-like C, N, O, and Ne, as well as from the Fe L-shell. The presence of narrow RRC from O VIII, O VII, and C VI, the last two with resolved widths corresponding to temperatures around 5-10 eV, is a strong indication of a gas in photoionisation equilibrium, as confirmed by the prevalence of the forbidden component in the O VII triplet. Two gas phases with different ionisation parameters are needed to reproduce the spectrum with a self-consistent photoionisation model, any contribution from a gas in collisional equilibrium being no more than 10% of the total flux in the 0.35-1.55 keV band. When this self-consistent model is applied to the 0.5-10 keV band of the EPIC pn spectrum, a third photoionised phase is needed to account for emission lines with higher ionisation potential, although K-alpha emission from S XV and Fe XXVI remains under-predicted.