In a square in Seville, children from the neighborhood come marching in, imitating the soldiers during their changing of the guard. Lilas Pastia, a tavern keeper, introduces himself and sets the scene for the story of Carmen, a beautiful Gypsy girl who makes every man she meets fall in love with her. After the children go marching off, Lieutenant Zuniga questions Corporal José about the nearby cigarette factory and the pretty girls who work there. The cigarette girls leave the factory for a break, and men gather to catch a glimpse of Carmen. When she appears, Carmen flirts with them and throws a flower to José. The girls then return to work and José is left alone thinking of the Gypsy girl. Screams are heard from the cigarette factory, and Zuniga sends José to find out the cause of the disturbance. José returns with Carmen and another girl, Manuelita, who has been injured in a fight started by Carmen. When Carmen refuses to speak, Zuniga orders José to tie her hands and take her to prison, and then leaves to make out the warrant for Carmen's arrest. Carmen hints to José about having a romantic rendezvous with him at her friend Lilas Pastia's tavern, and José is now so much in love with her that he rashly agrees to let her escape. When Zuniga returns with the warrant, Carmen breaks free as she is being led off to prison. José is arrested for letting her get away.
Lilas Pastia welcomes us to his tavern, which is a popular hangout for smugglers. Carmen and her Gypsy friends Frasquita and Mercédès sing and dance for a group of soldiers, including Zuniga, who, like so many other men, is in love with Carmen. He tells her that José has been released from prison. A torchlight procession announces the arrival of the famous bullfighter Escamillo. He acknowledges the soldiers' toast and describes the excitement of the bullfight. He is attracted to Carmen, but for the moment her thoughts are only about José. As the soldiers leave, Zuniga insists on returning later that night to see more of Carmen, despite her indifference. The smugglers Dancaïre and Remendado come to ask Carmen, Frasquita, and Mercédès to help them get contraband goods across the border by distracting the guards. José arrives and gives Carmen the gold piece she sent him along with a file while he was in prison. He explains that his soldier's honor prevented him from trying to escape. Carmen dances for José, but when trumpets are heard sounding the call for soldiers to return to their barracks, he starts to leave. She taunts him and challenges him to follow her to the mountains with the smugglers. When Zuniga returns, José fights with him, but the two soldiers are disarmed by Dancaïre and Remendado. Having attacked his superior officer, José now has no choice but to desert the army and run off with Carmen and her band of smugglers.
Some months have passed. Outside the bull ring, Lilas Pastia reveals the news that Carmen has grown tired of José and his jealousy. She has left him and is now with Escamillo. The crowd gathers inside the arena for the bullfight, eagerly awaiting Escamillo, who is their favorite matador. He arrives with Carmen at his side. Frasquita and Mercédès warn her that José is in the crowd looking angry. Unafraid, Carmen waits alone outside the arena. José confronts her and begs that she return to him. She hotly refuses, saying she loves Escamillo, and defiantly gives José back his ring. In his jealous rage José kills her.