In a bustling Seville square, a girl from the countryside addresses Moralès and his fellow soldiers as they observe the crowd. She is searching for a corporal named Don José, who – as it turns out – will be arriving in the square later when the guard changes. Evading the soldiers’ flirting, she decides to come back later. José duly arrives with the new watch and learns from Moralès that a pretty girl has been looking for him. He realizes that this can only be Micaëla, the orphan girl whom his mother has been raising in the countryside. The bell of the nearby tobacco factory rings, and the men gather to admire the working girls going on their break – especially Carmen, the sensual Gypsy girl, who has every eye locked on her, except José’s. Carmen throws a flower to the corporal and hurries back to work. Micaëla returns to deliver the letter and money that José’s mother has sent to him and then departs. A fight has broken out in the factory. Shouting over each other, the cigarette girls explain to Lieutenant Zuniga that Carmen has slashed another girl’s face. José leads the accused into the square, but she refuses to say anything about the matter. Zuniga withdraws to write out the order for Carmen to be locked up. Left alone with José, the girl attempts to use her feminine allure to convince the corporal to set her free. The bewitched soldier goes ahead and releases her bonds. When Zuniga returns, Carmen shoves José and races off.
Two months later, the Gypsies and soldiers are carousing in Lillas Pastia’s tavern. Lieutenant Zuniga longingly watches Carmen dance. Suddenly the clamour of a celebratory crowd is heard from outside, and the famous toreador Escamillo arrives. His eyes linger on Carmen, who returns his gaze. Escamillo departs with the crowd, leaving Carmen alone in the tavern with her girlfriends Frasquita and Mercédès. Two smugglers – Dancaïre and Remendado – secretly arrive at the tavern in order to ask the girls to help pull off their next caper. Carmen, however, has no desire to go with the smugglers, as José, her new love, is being released that day from the prison where he had been locked up since Carmen’s escape. The corporal’s singing is heard in the distance, and the smugglers stand aside in order to leave Carmen alone with him. The Gypsy girl starts to dance for him, but soon a bugle is heard sounding the call to quarters. José has to head for the barracks if he wishes to avoid further trouble. Carmen grows furious, and José’s protestations of love are not enough for her: she wants him to desert and choose the free life of the smugglers. José rejects this idea, and Carmen tells him everything is over between them. Suddenly, there is hammering at the door: it is Zuniga, who has returned for Carmen. The two men set on each other, and are pulled apart by Dancaïre and Remendado. José now has no choice but to join Carmen and the smugglers.
The band of smugglers are camped out alongside a mountain road. Carmen and José argue: she finds his constant jealousy aggravating. Frasquita and Mercédès draw cards to read their fortunes: the cards prophesy a handsome lover for one of them and an old but wealthy husband for the other. Carmen also takes a card, but hers foretells death. Dancaïre takes the three girls to help reach an agreement with the customs guards. Micaëla appears in the empty camp fearing that she will be forced to encounter the woman for whose sake her beloved José has become a villain. Hearing voices, she hides. Left behind to guard the camp, José has called out to a stranger. It turns out to be Escamillo, who has come to find the beautiful Gypsy girl with whom he has fallen in love. Upon learning that it is Carmen he is looking for, José draws a knife, but the returning smugglers separate the two men. Escamillo departs. Micaëla emerges and begs José to return home to his dying mother. Before leaving for home, José warns Carmen that they will meet again.
Before the bullfight in Seville, the crowd is cheering the procession of picadors and toreadors. Arriving on Escamillo's arm is Carmen, whose girlfriends warn her to take care, as they've spotted Don José in the crowd. The girl, however, is not deterred. The crowd makes its way into the arena. José appears and pleads with Carmen to come back to him, since he cannot live without her. The Gypsy girl coldly replies that everything is over between them, and she now loves someone else. Inside, the crowd cheers Escamillo. Beset with jealousy and increasingly passionate, José argues with her. Carmen returns the ring that he had given her earlier. Don José draws a knife and stabs his beloved.