The first act opens upon a rural scene in front of a posada, where the peasants are dancing and singing a lively chorus ("List to the gay Castanet").  Elvira and Carmen, her attendant, enter upon the scene, and are asked to join in the dance, but instead, Elvira delights them with a song, a vocal scherzo ("Yes, I’ll obey you").  The innkeeper is rude to them, but they are protected from his coarseness by Manuel, the muleteer, who suddenly appears and sings a rollicking song ("I am a simple Muleteer”) to the accompaniment of a tambourine and the snappings of his whip.  A dialogue duet follows, in which she accepts his protection and escort.  She has already recognized the Infant, and he has fulfilled the motive of the story by falling in love with her.  At this point the three conspirators, Don Pedro, Don Sallust, and Don Florio, enter, the first of whom has designs on the throne.  They indulge in a buffo trio, which develops into a spirited bacchanal ("Wine, Wine, the Magician thou art!").  Observing Elvira’s likeness to the Queen, they persuade her to personate her Majesty.  She consents with feigned reluctance, and after accepting their escort in place of Manuel’s, being sure that he will follow, she sings a quaint rondo ("Oh, were I the Queen of Spain!"), and the act closes with a concerted number accompanying their departure.

The second act opens in the throne-room of the palace, and is introduced by a very expressive conspirators’ chorus ("The Queen in the Palace"); after which Don Pedro enters and gives expression to the uncertainty of his schemes in a ballad ("Though Fortune darkly o’er me frowns”) which reminds one very forcibly of “The Heart bowed down,” in “The Bohemian Girl.”  The Queen, who has eluded the surveillance of the conspirators, makes her appearance, surrounded by her attendants, and sings that exquisite ballad, “The Convent Cell” ("Of Girlhood’s happy Days I dream"), one of the most beautiful songs ever written by any composer, and certainly Balfe’s most popular inspiration.  At the close of the ballad Manuel appears, and is granted an audience, in which he informs her of the meeting with the peasant girl and boy, and declares his belief that they were the Queen and Carmen.  She ridicules the statement, and a very funny trio buffo ensues ("I’m not the Queen, ha, ha!").  He then informs her of the conspirators’ plot to imprison her, but she thwarts it by inducing a silly and pompous old Duchess to assume the role of Queen for the day, and ride to the palace closely veiled in the royal carriage.  The plot succeeds, and the Duchess is seized and conveyed to a convent.  In the next scene there is another spirited buffo number, in which Don Pedro and Don Florio are mourning over the loss of their peasant girl, when, greatly to their relief, she enters again, singing a very quaint and characteristic scena ("I’m but a simple Peasant Maid"), which rouses the suspicions of the conspirators.  They are all the more perplexed when the Queen announces herself, and declares her intention of marrying the muleteer.