Lilas Pastia’s club. Carmen and her friends Frasquita and Mercedes are singing and dancing at the tavern. The famous bullfighter Escamillo enters and raises a toast to the assembled company. Carmen is impressed, but she tells the toreador she’s seeing someone. When he leaves, a crowd follows him. The hour grows late and Pastia closes the tavern, leaving Dancaïro and Remendado to explain their new business scheme to the women. Frasquita and Mercedes are willing to start off at once, but Carmen insists on waiting for José, who is to have been released today. They suggest converting him to their band.

José comes in and Carmen makes him jealous by telling him she’s been obliged to dance for Zuniga and the other officers. She begins to dance for him, but soon he hears the bugle call to return to his barracks. She taunts him for yielding to duty and not to love. As proof of his passion he pulls out the flower she threw at him. But if he really loved her, she says, he’d desert the army and go with her and her friends. Zuniga enters in search of Carmen and jealous José fights him. Carmen’s cry brings the band running back. They disarm the men, Zuniga leaves, and now José has no choice but to head for the mountains.

A rocky pass in the mountains. The smugglers relish the perils of their assignment. José misses his mother, his home and his honest reputation, and Carmen dares him to go back. He threatens her: he’ll never leave. She says she is in the hands of Fate. The other girls decide to play cards to tell their fortunes. Each time Carmen shuffles and deals, she sees the Nine of Spades: Death. In the hands of Fate.

Dancaïro enters to call them to their posts to carry the next shipment. A guide enters the pass unseen, leading Micaëla to where she might find José. She prays for the strength to reclaim her sweetheart from this other woman’s clutches. Now Escamillo enters in search of Carmen, and José challenges him to fight. Just as Escamillo’s knife snaps, Carmen steps in to separate the rivals. Escamillo invites everyone to his next fight in Seville. Then Remendado and Dancaïro find Micaëla hiding. She is overjoyed to see José, and she begs him to come home. Carmen seconds the advice. He says he’d rather die than leave her — but when Micaëla reveals that his mother is dying, he leads her away. Escamillo’s voice is heard in the distance.

The arena in Seville. The crowds celebrate as the festival procession approaches the bullring. Escamillo enters with Carmen on his arm. Frasquita warns Carmen that José is nearby. Carmen waits calmly for him. José pleads with her to leave the bullfighter and start a new life together. She knows her hour has come, she says, yet she won’t go with him. He begs her not to go. She says she doesn’t love him. He bars her way. She throws her ring at him. He stabs her. She falls. The crowd pours out of the arena. José presents himself to be taken into custody.