Outside a cigarette factory in Seville soldiers are enjoying the sunshine when Micaela enters, in search of a corporal, Don Jose. Morales tells her Don Jose will arrive with the changing of the guard, but Micaela flees before he does so. Soon after Don Jose and his superior Zuniga have entered, the factory bell sounds and the women workers come out for their break. It is the gypsy Carmen who attracts the most attention, and she begins openly to flirt with Don Jose. Micaela returns, delivering to Don Jose a letter from his mother, asking him to travel home and marry Micaela. A disturbance has occurred in the factory: Carmen is accused of brawling. Zuniga charges her and orders Jose to take her to prison. Left alone, Carmen exerts her wiles on the innocent Don Jose. He agrees to help her escape if she promises to love him. Carmen flees and it is Don Jose who is arrested.
Carmen and her gypsy friends are entertaining officers in a local tavern. Zuniga tells Carmen that, after a month in prison, Don Jose has been set free. A crowd is heard outside acclaiming the great toreador Escamillo, who enters with his entourage. He, too, is immediately attracted to Carmen. Remendado and Dancairo, two of Carmenâ€™s gypsy friends, arrive and try and recruit their lady friends on a smuggling mission. Unlike Frasquita and Mercedes, Carmen is unwilling to comply, saying she is waiting for Don Jose. Mockingly, the men suggest she brings her new amour with her. Don Jose arrives and Carmen dances with him. Yet a roll call persuades him that the barracks are his true home. Once more, Carmen taunts him, accusing him of not loving her. If he really loves her, Carmen says, he will leave the army and go with her to the mountains. Jose starts a fight with his superior officer. Remendado and Dancairo disarm Zuniga and, now, the corporal is destined for a life of crime.
The smugglers have assembled in a hideout in the mountains. Don Joseâ€™s and Carmenâ€™s relationship has reached breaking point, and they argue yet again. Mercedes and Frasquita pass the time by reading fortunes with cards, and when Carmen joins in, only death is foretold for her. The gypsies leave on a new assignment and Don Jose is instructed to guard the contraband. Micaela soon arrives, looking for Don Jose; followed by Escamillo, in pursuit of Carmen. Micaela hides whilst Jose challenges the toreador to a fight but their feud is interrupted when Carmen herself intervenes. Escamillo throws down a new challenge â€“ his next bullfight â€“ and exits. Meanwhile, the exposed Micaela once again begs Don Jose to return to his rightful home. Now severing her relationship finally, a cold and dispassionate Carmen urges him to go.
Outside the bullring in Seville a crowd has gathered to watch the procession of matadors and toreadors before their combat. Carmen is on the arm of Escamillo yet Frasquita and Mercedes warn her that Don Jose is still in pursuit. Carmen waits for him; he appears and desperately pleads with the gypsy to return to him, protesting his love. A taunting Carmen says her new boyfriend is Escamillo; at that point espoused by the cheering off-stage crowd. Unmoved by Don Jose despair, Carmen flings the ring he gave her at his feet. He kills her.