Adele, the Eisensteins’ housekeeper, has been invited to a party held by the Russian Prince Orlofsky and very much wants the evening off. Rosalinde, the lady of the house, is being besieged at the front door with serenades by the tenor Alfred, the love of her youth. Her husband Gabriel von Eisenstein has to serve a prison sentence for insulting a government official. His friend Dr. Falke manages to persuade him to attend Orlofsky’s party and begin his sentence the day after. Eisenstein skips his farewell supper with Rosalinde and follows Falke to the party. Adele is given the night off and Rosalinde is able to receive Alfred who makes himself at home in Eisenstein’s dressing gown. The new prison director, Frank, who arrives to arrest Eisenstein in person, takes him for the master of the house. Alfred allows himself to be taken into custody in order not to expose Rosalinde.
Prince Orlofsky’s party is the scene of exuberant celebration. Everything is just as Falke had imagined. Adele appears in her “madame’s” evening gown and claims to be a young artist named Olga. Falke introduces Eisenstein to the company as Marquis Renard and the Prison Director also turns up under the pseudonym Chevalier Chargrin. Finally a masked Hungarian Countess is announced – who is none other than Rosalinde. Eisenstein does not suspect who he has in front of him and attempts to lure this unknown beauty with a pocket watch. Rosalinde succeeds in taking this exquisite piece of evidence from him. Fuelled by champagne, Eisenstein tells of how once after a carnival ball he publicly embarrassed the drunken Falke in a bat costume. The night accelerates in a giddying whirl to a state of collective fraternization until it ends abruptly when the clock strikes six a.m.
One by one the party finds its way to the city prison. Director Frank wishes to begin his first day at work, Adele is searching for the benefactor who promised the night before to finance her training and Eisenstein discovers that he is already behind bars. He feels cheated on by Rosalinde. She responds by flourishing his watch under his nose and demands a divorce. Falke turns up with all the other guests from the party and saves the situation. Eisenstein discovers that everything has been part of Falke’s elaborate scheme for revenge. He and Rosalinde make up and everyone agrees to blame the champagne.