In a square in Seville, lounging dragoons watch the passers-by. They try to flirt with a country girl who is looking for a corporal named Jose, but she runs away. When Jose arrives with his platoon, he is told about the girl and he guesses that it is Micaela from his village in Navarra. As noon approaches, the square begins to fill with men who are waiting to see the cigarette factory workers who come out every day at that time. Their favorite is a gypsy named Carmen who taunts them with a song. Jose pays no attention to her, and this attracts her attention. She throws a flower at his feet, provoking giggles from the rest of the cigarette girls.

Left alone, Jose feels impelled to pick up the flower, but he conceals it when Micaela returns with a letter from his mother. Micaela has no sooner left when there are screams from the cigarette factory and girls come running through the door. Carmen and Manuelita, another worker, have been having a fight inside, and Manuelita has been wounded. The lieutenant, Zuniga, orders the arrest of Carmen. Her hands are tied, and Jose is to cake her to prison. Left alone with Jose, she invites him to a rendezvous at a tavern outside Seville if he will permit her to escape. He agrees, and as he is leading her off, he allows her to knock him over, effectively blocking the other guards.

At the tavern of Lillas Pastia, soldiers, townsmen and gypsies are drinking and singing. Escamillo, the toreador, passing by in a torch-light procession, is invited to join them. He is immediately attracted co Carmen. Zuniga, also attracted to her, promises to return later, although Carmen tries to dissuade him. After all have left, Carmen’s smuggler friends try to persuade her to use her charms to induce Jose to join their band. When he enters, just released from prison, she makes the attempt, but he refuses. As he is about to leave, Zuniga returns and becomes involved in a sword fight with Jose. The smugglers disarm them both, but Jose, having drawn his sword on an officer, now has no choice but to join the gypsies.

Months have passed and Carmen’s affections for Jose have cooled. The smugglers meet in a mountain pass and pause while scouts are sent ahead to see if the way is clear. Jose tells Carmen that he would rather kill her than leave her. Reading her fortune in the cards, Carmen foresees that this will happen. The smugglers leave with part of the contraband and Jose is left to guard the rest.

Brought by a guide, Micaela comes in search of Jose. Believing that he is shooting at her, she runs to hide when Jose fires his rifle at a man coming up the path. It is Escamillo looking for Carmen. The two men draw their daggers, but the fight is stopped by the return of the smugglers. Escamilla leaves, inviting the band to attend the coming bullfight. Micaela is discovered and tells Jose that his mother is at the point of death. Now he has to leave, but before going, he threatens Carmen once more.

It is the day of the bullfight and vendors crowd the square in front of the arena. At the height of the procession of bullfighters, Escamilla appears with Carmen on his arm. Frasquita and Mercedes warn Carmen that Jose is in the crowd, but she refuses to leave. Faced by Jose, she spurns his offer to take her away and throws at him the ring which he had given her. He stabs her, and as the crowd pours into the square, he admits his guilt and asks to be arrested.